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Investors Flock to Gold Before QE3

Written By Brian Hicks

Posted August 13, 2012

Amidst heightened speculation that various central banks will be forced to implement new rounds of quantitative easing or take other action, investors bought nearly $850 million of gold via exchange-traded products just this month.

In July, both the domestic and European manufacturing sectors shrank while China saw a slowdown in its industrial-production growth rate. Both the Federal Reserve and the European Central Bank, you may remember, had promised that they would take action when necessary.

Gold typically earns returns for investors only through price gains, so lower interest rates provide a great opportunity. Two rounds of quantitative easing ended in June last year, wherein the Fed bought $2.3 trillion of debt, sending bullion soaring by 70 percent.

From Bloomberg:

“More stimulus or money printing is almost certain given the levels of debt out there which is slowing down economic growth,” said Mark O’Byrne, the executive director of Dublin- based GoldCore Ltd., a brokerage that sells and stores everything from quarter-ounce British Sovereigns to 400-ounce bars. “That should be supportive of gold prices.”

This year, gold continued its 11-year run of gains, rising 3.6 percent to $1,623.60 per ounce on Comex. ETP purchases amounted to 16.3 tons, meaning the value of total holdings is now around $125.4 billion. According to Barclays Plc, this year should see total sales of 250 tons.

Based on the continuing European economic turmoil, the IMF in July reduced growth estimates for 2013 to 3.9 percent worldwide (down from 4.1 percent).

Although gold continues to be a safe haven for investors, some have sought out the dollar or government bonds. At the same time, sales of gold coins are slowing down, with a drop of 49 percent (to just 30,500 ounces) for American Eagles sales in the last month.

Gold has averaged $1,643 this year, and Goldman Sachs predicts it will go to $1,785 in just three months.