Investors rush into gold coins

Investors in Europe and North America went on an extraordinary shopping spree for gold coins and bars in the final quarter of last year, snapping up 148.5 tonnes, a jump of 811 per cent compared with the same period in 2007, as the collapse of Lehman Brothers led a massive increase in safe haven buying.

This rush into physical gold by western investors pushed global retail investment up almost 400 per cent to 304.2 tonnes, according to the industry-backed World Gold Council, which released its fourth-quarter Gold Demand Trends report on Wednesday.

The WGC’s data confirmed earlier reports from traders about widespread shortages of coins and exceptional buying interest. Retail investors in France, for example, become net buyers of gold for the first time in a quarter of a century at the end of last year.

Investment inflows into gold exchange traded funds (ETFs) reached 94.7 tonnes in the fourth quarter, up 18 per cent on the same period in 2007, but down from the record 150 tonnes of inflows seen in the third quarter of 2008.

ETFs have seen strong inflows continue this year. The SPDR Gold Trust said its holdings surpassed the 1,000 tonne mark on Tuesday, reaching 1,008.8 tonnes, up by 228.6 tonnes so far this year.

The SPDR Gold Trust, the largest physically backed exchange traded fund, is now the world’s seventh-largest holder of gold bullion, having absorbed about 10 per cent of global annual mine output in the past seven weeks.

Looking ahead, the WGC said investment demand was likely to be underpinned by the extreme levels of uncertainty surrounding the outlook for the global economy and other asset classes.

The strength of investor interest has analysts wondering just how far the gold price could rise.

“There is a very strong case to be made that the current rally in gold is potential pre-positioning ahead of a much larger move at some point in the future,” said Michael Jansen, analyst at JPMorgan.

Mr Jansen said that if ETF investment inflows and demand for coins and bars remained as robust this year and the last half of 2008, there was a “very good chance” that the gold price would remain supported.