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February 17, 2013 at 10:02 PM
Investors interested in the precious metals/stones sector have seen a number of factors in play on their chosen favorites. While some are common to all the entries in the sector, for gold, platinum and diamonds there are a few factors that have more influence over up or down trends than others.
Take gold, for example. Although sought after for jewelry all over the world, with China, India and the U.S. being large buyers, gold’s political importance because of its innate value can outshine its worth as a symbol of prosperity and the delights it offers as a glittering trinket. With its price on a more-or-less steady upward path for the past 12 years, gold has reacted to everything from the European debt crisis to the threat of the fiscal cliff in the U.S.
Gold also had to deal with unrest at the mines that produce the lion’s share of new supplies. In October, strikes at the South Africa mines of AngloGold Ashanti and Gold Fields Ltd., among others, were marked by violence and death, shutting down production and driving up the price of the metal as workers demanded higher wages. In response, the price of gold ticked up even as investors suggested that mining companies divest their South African operations to cut country exposure and boost value in their operations elsewhere in the world. News in January that the Fed was headed for a halt in debt purchases drove the price the other way, and gold hit a four-month low.
Most recently, however, the price has risen on Germany’s determination to repatriate a substantial portion of its gold reserves held elsewhere; to Russia’s determination to out-buy the rest of the world as it seeks to shore up its gold reserves, even as other central banks are selling theirs; and to uncertainty over North Korea’s nuclear missile program.
Germany’s action regarding its gold has increased “the mindfulness of gold in central banks,” said John Blank, chief equity strategist at Zacks. “Generally gold sat un-thought of for years, till it moved. The motion itself is interesting, because it raises the attention span of central banks to their gold reserves.”
While Germany’s action wasn’t expected to have any effect on markets, Blank said “It tells us that everywhere people are aware of where gold is and rethinking its use, position and value.” Germany’s move to shift its gold reserve home was a positive move, he said, because it indicated that Germany is “thinking of itself in a twenty-first century setting instead of a twentieth-century setting,” and considering how to position its reserves going forward.
Speculation on Russia’s move, however, is something else altogether. Published reports quoted lawmaker Evgeny Fedorov, a member of Prime Minister Vladimir Putin’s United Russia party, as saying, “The more gold a country has, the more sovereignty it will have if there’s a cataclysm with the dollar, the euro, the pound or any other reserve currency.” Putin’s own spokesman had declined to offer a comment on the Russian leader’s accumulation of 570 metric tons of the stuff over the last 10 years, making Russia outpace even China as the world’s largest gold buyer. Russia’s hunger for gold is not unique to Putin, of course; as far back as 1867 under Czar Alexander II, the country was on one of many gold-buying binges.
