In his new Financial Times column, John Dizard writes that the gold bull seemed to be tiring. Until the news of India buying IMF gold gave the gold price a speed-like rush.
Yet Dizard sees higher prices for the metal over the longer term -- and his view is based on factors ASIDE from India:
It is not central bank gold purchases, though, that are the key
support; it is the prospect of more extensive controls on the
international flow of capital. Specifically, it was Brazil's imposition
of a 2 per cent tax on capital inflows in October, not India's gold
purchases that month, that was the most significant gold-positive
signal. In the past, multilateral officials, such as the managing
director of the IMF, would have murmured disapproval, with suggestions
that anti-liberal moves such as this should be reversed as quickly as
possible. Not now. Brazil's apparent attempt to keep down the real's
appreciation, probably to ensure export competitiveness, is accepted
and applauded by multilateral-dom as mainstream political economy.
Keep in mind, Dizard is talking the gold metal price over the long term. Anything could happen in the near-to-intermediate term. And check this out:
Andy Smith, a gold strategist with Bache Commodities in London, says
it is not the buyers of the odd Krugerrand who are beginning to take
over the buy side of the market. "It's the representatives of the Mas
and Pas. The bullion bankers are being trained more on the retirement
funds in the middle of nowhere and less on the hedge funds."
This
means more of the rising base of buyer interest is in the metal, rather
than derivatives. Many of them apparently prefer to have their gold in
vaults near where they are, Mr Smith's "middle of nowhere", rather than
in LME or COMEX warehouse receipts.
And a bit further down:
If one were only interested in getting exposure to gold at
a low transaction cost and had no concern about capital controls or
taxation, then derivatives, or tradable warehouse receipts, are much
more efficient.
This gradual change in investor preference is
about an inchoate fear of one government or another getting between the
investor and his money.
As I repeatedly point out, because I like to keep my cards on the table for readers of Controlled Greed, my exposure to gold is through the SPDR Gold ETF (GLD). It stood at more than 10% of portfolio assets as of September 30.