The Love Trade For Gold Is Still On
Frank Holmes | May 28, 2013 05:37PM ET
Investors should have gained confidence from Ben Bernanke’s recent testimony to Congress that the Federal Reserve intends on being accommodative as long as needed. He had a laundry list of job market conditions that needed improving and reiterated that inflation remains low. It’s his belief that “a premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further.”
The Fed’s news is “great for all of us in stocks… and not so great for those with cash in a savings account, with real negative returns for the past four years,” reminded Money Map Press. Yet, at least in the short term, markets interpreted Bernanke’s testimony differently, as stocks dropped during the week of May 20.
The news should also be good for gold investors. Not only is the Fed maintaining its course, the world is also continuing its synchronized easing. According to Deutsche Bank, central banks representing almost 30 percent of global GDP are cutting rates.
The rate cuts are spread out over nearly every continent, as you can see on this great visual posted by Business Insider. Turkey’s central bank cut its benchmark interest rate more than expected in April by 50 basis points and then another 50 basis points in May. Serbia also slashed rates by 50 basis points, as did Sri Lanka. Even the European central bank reduced its main rate to a record low 0.50 percent. According to Bloomberg, ECB President Mario Draghi is “promising to provide as much liquidity as eurozone banks need well into next year.”
Gold purchases are getting so strong these days, buyers are willing to pay a premium, says Mineweb. The mining publication reported that premiums on gold bars are climbing to all-time highs in Hong Kong and Singapore, with Chinese residents paying $5 to $6 an ounce over the spot London price due to classic economic one-two punch of huge demand and tight supply.
According to data from the Hong Kong Census and Statistics Department, “net gold flows from Hong Kong to China jumped to 223.519 tons in March from 97.106 tons in February, smashing a previous record of 114.372 tons in December,” says Mineweb.
This is the Love Trade in action.
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