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Gold Seen Luring Wealthy as Central Bankers Expand Stimulus

Gold Seen Luring Wealthy as Stimulus Expands From U.S. to Japan
Gold is in the 12th year of a bull run, 13 percent higher this year, as investors seek to hedge against weaker currencies and the threat of rising consumer prices. Photographer: Sergio Dionisio/Bloomberg

More high-net-worth individuals are seeking to buy gold to protect their wealth from the risk of rising inflation after central banks boosted stimulus, according to Deutsche Bank AG’s asset and wealth-management unit.

“Gold has historically been considered to be a store of value and an inflation hedge and increasingly it is being utilized as a monetary instrument,” said Mark Smallwood, head of Asia-Pacific wealth-management solutions. “There is a growing interest among our clients to gain exposure,” he said, with an increased preference for physical holdings.

Gold is in the 12th year of a bull run, 13.5 percent higher this year, as investors seek to hedge against weaker currencies and the threat of rising consumer prices. Holdings in gold-backed exchange-traded products expanded to an all-time high yesterday, and Bank of America Corp. and Deutsche Bank are among banks forecasting that the price will rally to a record.

“With the movements by the central banks globally in the last few weeks, there is considerable investor concern as to the long-term effects of the liquidity infusions,” Smallwood said by phone from Guilin, China yesterday. “As a result of that, private clients are concerned about the possible future effects of inflation and the means of hedging that risk.”

Immediate-delivery gold reached $1,779.50 an ounce on Sept. 19, the highest price since February, after central banks took further steps to bolster their economies hurt by Europe’s debt crisis. The metal, which reached a record $1,921.15 on Sept. 6, 2011, gained 0.4 percent to $1,774.85 at 5:30 p.m. in Singapore.

Central Banks

The Bank of Japan said Sept. 19 it will expand a fund that buys assets following the U.S. Federal Reserve’s announcement last week of a third round of so-called quantitative easing, or QE, by buying $40 billion of mortgage-backed securities a month. China’s government has approved infrastructure plans to support the second-largest economy and the European Central Bank gave details this month of a program to buy debt of member states.

“For our ultra-high-net-worth clients, and a growing number of our high-net-worth clients who have significant liquidity, they are becoming increasingly concerned to have at least some of their exposure to this asset class in the form of allocated physical bullion itself, rather than the indirect exposure that an over-the-counter product offers,” he said.

Deutsche Bank clients can store gold in Malca-Amit Global Ltd.’s vault at the Singapore FreePort, Smallwood said. Malca Amit, which holds assets for banks and individuals, is doubling its space in Singapore, the company said in February.

Record Forecasts

Gold will climb to $2,400 by the end of 2014 if the Fed’s latest easing lasts until then, Bank of America said Sept. 18. Prices will exceed $2,000 in the first half of next year, Deutsche Bank wrote that day. The Fed said its purchases would last until it sees a “sustained improvement” in the economy.

The difference in yield between 10-year notes and same-maturity Treasury Inflation Protected Securities, a gauge of expectations for U.S. consumer prices, reached 2.73 percentage points on Sept. 17, the most since May 2006. Prices rose 0.6 percent in August, the Labor Department reported Sept. 14.

Billionaire investors George Soros and John Paulson increased their stakes in the SPDR Gold Trust, the biggest gold-backed exchange-traded product, in the second quarter, filings showed, while central banks from Russia to South Korea are also adding bullion to reserves. Central banks may purchase close to 500 tons this year after becoming net buyers in 2009, according to the World Gold Council.

Hurt Demand

Slowing global economies may hurt gold demand, which fell 7.1 percent in the second quarter, the London-based council said Aug. 16. Imports by India, last year’s biggest buyer, slid 56 percent to 131 tons in the second quarter, the council said. Indian purchases are down 31 percent year-to-date, UBS AG estimated yesterday.

Gold imports by mainland China from Hong Kong rose in July for the first time in three months, reaching 75.8 metric tons, according to data from the Census & Statistics Department of the Hong Kong government. Shipments to the second-largest user reached a record 103,644.5 kilograms in April.

“A clear, upward trend of gold prices will reignite investment demand in China and India,” Janet Kong, an analyst at China International Capital Corp., the nation’s largest investment bank, wrote in a report.

-- With assistance from Chanyaporn Chanjaroen in Singapore. Editors: Jake Lloyd-Smith, James Poole

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