Panic and fears over the future of US and European economies have become the best aphrodisiacs for gold, which has been in an uncertain zone for the past few weeks.
Even though reports on European banks and US housing sales and the not-so-bad report on Portugal have caused gold prices to decline as safe haven sales fell, ongoing fears over sovereign government bonds, debt monetization and currency debasement will lead to an escalation of demand for physical gold and coins in the second-half of 2010.
A new report said ongoing pressure on sovereign debt markets, combined with persistent concerns over private sector credit contraction, will raise the spectre of debt monetization repeatedly over the next few years. Analysts Julien Garran, Tom Price and precious metals strategist Dr Edel Tully at Swiss banking giant UBS opined that the fear of further debasement of fiat currencies follows closely...and we expect that this background will remain very supportive for gold prices over the period. That informs our above-consensus Gold Price outlook.
Pointing to heightened physical demand for small Gold Bars and coins, and rising ETF creations as the recent Eurozone debt crisis peaked, A new trend in 2010 is the movement towards fully allocated physical gold, the UBS team said.
In the final six months of 2010, we expect this type of gold exposure will deepen as new and existing investors diversify a portion of their gold reserves to purely Allocated form - whereby the investor owns physical Gold Bullion outright, and pays a specialist custodian to protect it in secure, dedicated vaults.
To add to that a US Congressional subcommittee has been asked to investigate the growing backlog in and foreign procurement of US bullion and collectors' precious metals coin blanks manufactured by the US Mint.
Director of the US Mint Edmond Moy said the subcommittee that, if the Mint can begin production by September, we will be able to produce about 830,000 one-ounce silver American Eagle coins to meet collector demand for this product in the remaining months of 2010.
Although bullion coin demand seemed to be subsiding earlier this year, in May, the Mint experienced an increase in orders for silver bullion coins to over 3.6 million coins. In fiscal year 2009, bullion coins sales reached an all-time high of $1.7 billion, nearly 80% above the sales of fiscal year 2008.(Source: Bullion Vault & Mineweb)