10 REASONS FOR PHYSICAL PRECIOUS METALS1) Protection against inflation - Due to the global economic crisis, politics and central banks have massively decreased their interests in recent years; money has been brought into circulation via stabilisation programmes and bailout measures for financial institutions. Many market participants now question how this money can be removed from the market again; otherwise, there is a risk of increased inflation in the current economic cycle. However, as the economy has not yet recovered, strong interventions would destroy all hope for an economic upturn. Therefore, governments and central banks will be very careful in carrying out countermeasures. Although hyperinflation, as experienced in the twenties in the previous century, seems unlikely, gold is seen as protection against increasing monetary devaluation (inflation).
2) Gold mining peak - Besides the “oil peak” debate, there are increasing discussions about a gold mining peak. Although the first mining increase since 2005 occurred in 2009, it is getting increasingly difficult to find new, productive deposits. Similar to oil (oil sand), companies are starting to use new technologies to reprocess old mines which have been closed down. This should enable the mining of remaining deposits.
3) Increased mining costs - The number of precious metal deposits which are easy to mine is decreasing. New technologies are required to mine currently existing mines. Mining is becoming increasingly energy intensive, complicated and expensive. Furthermore, the low prices for precious metals in the nineties meant that companies did not invest in new technologies, infrastructure and experts. Therefore, the price has increased, because expenses for mining a gold troy ounce have increased. At the end of 2009, it surpassed 600 US Dollars per troy ounce. Although one cannot speak of a natural lower limit for gold prices, it shows that the price for the profitable mining of precious metals is continuously increasing.
4) Gold as a safe haven in times of crisis -In times of economic crisis and insecurities, people return to stable values such as real estate and gold. As the crisis has yet to be overcome, there will be a continuing focus on the security needs of investors. Besides economic crises, topics such as state finances in Greece, the uncertain future of the Euro or excessive debt in the USA will lead to an increased investment in precious metals.
5) Gold coins as official currency - In contrast to state-backed paper money and coins, gold coins are not only used as official currency but also reflect the value of metal. Therefore, gold coins are not solely linked to government promises.
6) Stable demand for gold - Besides the enormous increase from private investors, large institutions have changed their investment behaviour. Big central banks, especially those from emerging markets, are changing from the supply to demand side. Their foremost objective is securing foreign exchange reserves and future current account surpluses.
7) New demand through „backed„ securities – Besides the possibility of direct investment in precious metals, there is an increasing growing demand for securities physically backed by precious metals. ETFs and ETCs of this kind have seen record inflows, which have led to a strong increase in demand.
8) Supply shortage - The supply side for precious metals, especially for gold, is increasingly decreasing. In particular, large institutions are maintaining their investments, or even switching to demand. The number of sales has been diminishing for years. For the coming years, currency institutions have announced that they plan to further reduce their release behaviour.
9) Industry demand for precious metals - Today, white metals are an integral part of many industries. Areas of application include, first and foremost, vehicle catalysers, electronics, health technology and the chemical industry. They are the strongest users besides the jewellery industry. Even though various industries will reduce their use through new technologies (car catalysers are not used for electronic and fuel cell – driven cars), renewable energies are standing in the sidelines ready to become the future users of precious metals.
10) Positive macro data - The global population will continue to grow in the coming years. Prosperity will increase in the emerging markets in particular. A much broader section of the population will have new needs. Millions of people will generate new demand. The areas which will experience the largest growth in demand are health, electronics, mobility and basic necessities (food, water). As many technologies require white metals, the demand will grow here too. Additionally, there will be an increased desire to secure the level of prosperity attained. For this purpose, gold will be at the top of the wish list.