Gold will soon regain its lustre

Gold has not provided much protection against the market crash, but that is yet to dent investors’ enthusiasm, writes Henry Sanderson in the Financial Times. The yellow metal has fallen for the past two weeks and has now erased most of its gains for this year. Yet online gold exchanges report brisk business. Bullionvault.com says that net demand has not been this high since “the depths of the financial crisis in March 2009”.

The Pure Gold Company reports a 980% increase in Britons “panic purchasing” gold bars and coins over the past week compared with the weekly average.

“Usually clients have lots of questions about the market and how the investment works, but over the last ten days it’s been a question of how much can they buy and how quickly can they do it,” says CEO Josh Saul.

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Experienced gold bugs will not be surprised by the metal’s recent pullback. The gold price also fell sharply during the early stages of the 2008 crisis, says Caroline Bain of Capital Economics. Investors tend to sell gold to cover losses or urgent cash needs elsewhere. After all, one of the attractions of gold is that it is a “relatively quick and seamless way to raise cash in times of need”.

It was only when the markets digested the implications of massive quantitative easing that gold went on a bull run from late 2008 that eventually peaked at $1,900 per ounce in summer 2011, notes Russ Mould of AJ Bell. If recent history is any guide, the launch of QE Infinity may be laying the groundwork for a repeat performance.