Scholarships: The Gold Rush

In the midst of a storm in financial markets, gold is on the rise and the price of the ounce is breaking the record. How to explain this yellow fever? Can we fear a golden bubble? Point.

Maybe it’s time to sell old granny’s ring. Gold prices continue to climb: now the 31.10 grams weighing an ounce of gold cost more than 1900 dollars (1300 euros). A level never reached. In six months, the price of the ounce has taken more than 30%, more than 50% over one year.

Why this gold rush?

In the midst of a stock market storm, gold is on the rise. First because investors “anticipate inflation,” says Yannick Colleu, author of a “Guide to investment in the gold market.” However, if the paper currencies, euro, and the dollar in mind, can fluctuate, gold remains a safe, tangible, rare, so expensive, whatever happens. “Gold is not the debt of anyone, while the dollar is a debt on the United States, which suffer from economic problems, and the euro a claim on Europe, which suffers from political problems”, explains also Jean-Philippe Roos, Managing Director of Fructifonds International Gold at Natixis Asset Management.

Thus, he summarizes, the gold rush reflects “a mistrust of the two main reserve currencies, the euro and the dollar, the fear of systemic risk for banks, and the fear of the return of inflation “.

Who has the fever of gold?

Individuals, of course, “but they do not make the general trend,” recalls Yannick Colleu. “There are especially very large investors, American funds for example,” he analyzes. Emerging countries “seem to play a big role”, for Jean-Philippe Roos. “On the one hand, because in India, but especially in China, the demand for gold for jewelry is very strong,” he says. On the other hand, because the central banks of China, Korea, India, Brazil, etc. have a lot of dollars. They are buying gold because they want to diversify their foreign exchange reserves. ”

“Before 2007, they were supplying the market by selling 400 to 500 tonnes of gold a year. Today, several central banks have made it clear that they are stopping sales – Germany and Switzerland in particular – and around 20 of them officially state that they have become buyers of gold, ” says Yannick Colleu.

Can gold welcome all the worries of the world?

No, because “it’s a tiny market,” says Yannick Colleu. “The total annual capitalization of available physical gold,” he continues, ” today represents less than 200 billion euros.” By comparison, the oil company ExxonMobil, the world’s largest market capitalization, alone weighs about much.

This is because there will be no place for everyone “a bubble will be created,” says this specialist. “Prices will, therefore, increase, until they become aberrant. Investors will then turn to silver, which at current prices represents less than one-fifth of gold’s capitalization and which in turn will increase dramatically. ”

Should we fear a bubble?

Yes, according to Valérie Gastaldy, a graphic analyst at Day By Day, interviewed by Reuters: ” Gold is the star of the summer, with new regular highs and soon the psychological threshold of 2,000 dollars [an ounce]. We note an acceleration of the uptrend and a bubble entry. ”

Not yet, not immediately, according to the two specialists interviewed by Libération.fr. There is a risk of what the jargon calls a “consolidation”: to understand a pause in the rise in prices or even a fall. And it is likely to be as “vertical” as was the rise, warns Jean-François Roos.

“The bubble is not yet formed, but there will be one. Investors will gradually begin to realize that government bonds [seen as a very solid investment, note] are not as safe as we want to say, ” said Yannick Colleu.

Jean-Philippe Roos does not believe in a gold bubble. “As long as the root causes of this increase in the price of gold remain, I do not see why this market would collapse. However, the United States can not make big decisions and could stumble until the presidential election in November 2012. “Moreover, ” the problems in the euro area may continue. ”

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