It is the inherent monetary value of gold rather than jewellery demand that is driving the gold price, Rezco Value Trend Fund, one of the South Africa's top performing unit trusts, said on Monday.
Taking a look at what is behind the current rally in the gold price, Rezco's US-based team member Rob Spanjaard said the gold price had a major rally in the decade from 1970 to 1980, rising from $35 (R259) per oz to over $700/oz. It then did very little for the next 25 years.
At the beginning of 1955, the gold price was $35/oz and the S&P index was at 35 and at the close of 2009 they are again almost equal, with the gold price between $1 100 and $1 200/oz and the S&P at about 1 100.
Spanjaard says its gold's performance as a financial asset that is driving the gold bulls.
"Gold has been monetised again. The inherent monetary value of gold rather than jewellery demand is driving the price," said Spanjaard.
"There are many investors who believe that gold retains its value even as governments resort to printing money to finance their deficits as they are now doing," he added.
Spanjaard said that since 1955 there are three distinct periods of about 17 years of either gold outperforming or underperforming.
The new gold cycle has just started according to this methodology.
But he does caution against constructing laws of finance from such examples.
"At Rezco we lean more to the view that we have the makings of yet another financial bubble," he warned. - I-Net Bridge
