Dollar gold bullion prices moved to three month highs, above USD 900 an ounce, in the past few days, and to all-time records in currencies such as the euro and Swiss franc, underpinning the ranking of listed gold stocks as the world’s best performing equities subsector. At the same time, listed bank stocks, seen on a global basis, rank as the worst-performing subsector, with, however, material discrepancies between country bank performances. 

Seen in dollar terms, gold bullion is less than 15% off its record highs, set in March 2008, and thus ranks as the “least underperforming” of commodity pricings. Most dollar energy and base metal prices are now at least 50% off highs. While crude oil and natural gas have a stronger underlying momentum in terms of demand, miners outside the gold and silver sectors continue to announce supply cuts of varying kinds, and continually trim expansion and new project plans. 

In the background, the status of gold bullion as a so-called “safe haven” asset continues to gain its own momentum. There is also an overlapping area, where gold bullion’s role and potential heightened role as a monetary asset is increasingly reexamined across a world stricken by a crisis of confidence in banking and related systems. Listed bank stocks across the world have lost USD 3.1 trillion in market value over the past 12 months alone, and are yet to establish a “bottom”. 

By contrast, a count of 250 listed gold stocks around the world have risen, on a weighted basis, by more than 100% since churning along a bottom during October and November 2008. The collapse of most commodity prices means less cost inflation, and, allied with a relatively strong gold price, gold companies remain supported by firm fundamentals. 

Beyond the twists and turns in the world’s private banking sector, government central banks are generally increasingly positive towards the role of gold bullion. China holds just 700 tonnes of gold, worth roughly 1% of its giant foreign exchange reserves, compared to 58% for the Eurozone (including Russia), with 10,911 tons, and 77% or 8,133 tonnes locked up in Fort Knox in the US. 

The Asian cultural affinity for bullion gold is probably best described by the statistic that India houses roughly 29,000 tons of gold, of which the Indian central bank owns just 400 tons. Chinese official gold reserves may continue to increase with its country gold output; its reserves increased from 650 to 700 tonnes between 2006 and 2007 as China moved into the No 1 ranking in global gold production with 270 tonnes. From the start of 2007 to 30 September 2008 China added USD 840bn to its foreign exchange reserves. Given that gold bullion traditionally ranks as a measure of a country’s economic health, its currency and fiscal responsibility, it would hardly be surprising to see China increasingly diversify its reserves in favour of the yellow metal. Much the same can be said for other rising Asian nations. 

Increasingly, specialised investors are asking how Chinese investors might react to preserving their wealth in the face of a weakening Renminbi. It has long been shown that gold bullion is most sensitive to investment demand, which, however, has been significantly diversified since the World Gold Council’s introduction in 2003 of gold bullion exchange traded funds (ETFs). Today, the SPDR Gold Shares ETF, the biggest of its kind in the world, holds more than 800 tons of physical bullion, worth more than USD 24bn. 

In March 2009 a Shariah compliant gold ETF is planned to list in Dubai, where jittery Middle Eastern investors continue to ponder looser domestic currency ties to the dollar. Shanghai will likely follow with a gold ETF in 2010, an event that could unleash a quantum new era, adding to the luster increasingly rekindled around the yellow metal since it started to recover from long term lows seen during 1999 and 2000. 

INDICES

 

From

From

 

Points

high*

low*

MSCI world equities USD

825.38

-47.3%

8.7%

MSCI emerging markets USD

507.29

-59.5%

13.8%

S+P 500

831.95

-42.2%

12.3%

DJ Stoxx 600

182.48

-45.2%

2.5%

KBW banks

28.44

-70.5%

12.3%

 

 

 

 

STOCK

Value

From

From

GROUPS

USD bn

high*

low*

Dow Jones Industrial

2641.01

-42.1%

17.6%

Top 100 miners

750.02

-67.9%

55.6%

Oil stocks

1934.46

-50.1%

28.8%

S + P 500 Energy

1043.61

-46.1%

33.9%

Gold Tier I

147.64

-48.6%

102.5%

Gold Tier II

37.19

-50.6%

145.8%

Gold stocks overall

205.27

-51.1%

109.6%

Silver stocks

11.36

-66.5%

141.1%

World banks (80)

1577.47

-66.2%

18.3%

Uranium stocks

14.76

-59.3%

77.3%

* 12-month