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Investors gobble up world gold supplies

by Carla WilsonTimes Colonist
October 15th, 2008

Gold fever is spreading around the world.

Mints are cranking out as many gold coins as they can to meet international demand by investors jittery over the global financial crisis.

The gleaming financial security blankets sport likenesses of Canadian maple leaves, pandas, musical instruments, eagles, buffalo, kangaroos and more, all denoting their country of origin.

"Right now, our stocks (of bullion) are down to zero," says Brian Kotila, manger of the Old 'N' Gold store on Fort Street. Bullion refers to precious metals in the form of coins or bars.

The store typically hears from about six people per month wanting to buy bullion or sell it. Now, four or five calls are coming in daily and they are "all wanting to buy," Kotila said yesterday.

Last week, two buyers each purchased a 10-ounce gold wafer, said Bob McDonald, who owns Old 'N' Gold and Barclay's Exchange Inc. on Douglas Street. Gold prices vary daily depending on the markets but each wafer would have been close to $10,000 in value.

"We are getting more calls from buyers than we can presently supply," said McDonald, who also buys gold jewelry to sell in the store and for melting.

Canadian Maple Leaf one ounce gold coins are currently worth about $900, depending on the market, he said.

London gold futures for December delivery closed yesterday at $839.50 US, down $3, below March's record high of $1,033.90 US an ounce. As for its future value, Peter Munk, chairman of Barrick Gold Corp., owner of the world's largest gold reserves, predicts that bullion prices will continue rising, pushed by large-scale purchases by "major, major" holders of dollars worried about the U.S. government's bailout plan impact on currency.

Gold buyers would include central banks and sovereign wealth funds wanting to diversify investments and hedge against a weaker U.S. dollar, he said.

In this country, the Royal Canadian Mint is filling demand, up from last year, as quickly as possible, a spokesman said from Ottawa.

Pressure and demand is mounting on mints around the globe. Earlier this year, the U.S. Mint temporarily suspended sales of its American Buffalo one-ounce bullion coins because of low inventory, and last week it announced that no more half-and quarter-ounce American Eagle gold coins would be made for the rest of this year.

Perth Mint, which produces 10 per cent of the world's bullion, including Kangaroo coins, has doubled its output in the past six months. RAND Refinery in Johannesburg is moving to double its capacity to produce Krugerrands.

The Austrian Mint, has added a third work shift to boost output of its Philharmonic coins. From January to early October this year, the mint produced 370,000 of these coins, compared with 96,000 for all of 2007.

Just last month, the Austrian Mint sold 100,000 one-ounce gold coins. Normally, it takes three to four months to sell that quantity.

People are looking for an investment they feel is safe and gives them confidence, said Graham Voss, UVic associate professor of economics. As well as gold, money has been flowing into U.S. Treasury Bills, considered to be one of the safest assets.

He cautions that because the value of gold is determined in the market, "you are exposed. But it does seem that in times of financial turmoil, a large class of investors do seem to diversify and hold greater amounts of physical bodies like gold."

Over centuries, gold has been used as a medium of exchange, or as a type of month. Traditionally, that's how currencies were valued, giving it a psychological appeal.

However, gold doesn't pay interest. "To the extent that there is inflation, the real value of your purchase is also slowly eroding away," Voss said. To retain value, investors need gold prices to rise steadily, and because rates on U.S. Treasury Bills, for example, are so low, the cost of putting money into gold is far less.

 

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