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Kiener Says Gold Can Preserve Purchasing Power

Release Date: 
Monday, July 30, 2012

Gold prices fell slightly ahead of central bank meetings this week in the U.S. and Europe. Gold was $3.60 lower at 7:35 a.m. Pacific Time on the New York Spot Market, trading at $1,577.70 per ounce. Spot silver was $.29 higher, trading at $28.18 per ounce. (Click here for the most current spot prices.)

The Fed begins its two-day meeting on Tuesday and the European Central Bank (ECB) will meet on Thursday. After statements from ECB President Mario Draghi last week that the ECB would take all necessary steps to save the euro, markets are expecting announcements of further monetary easing. This will likely come in the form of bond buying, said Juerg Kiener, Managing Director and Chief Investment Officer of Swiss Asia Capital, who expects stimulus measures "within the next six weeks."

Investors were cautious ahead of the meetings and were looking for signals that Draghi's pledge will be matched with action. "The market will be very disappointed if Draghi doesn't deliver," Commerzbank analyst Daniel Briesemann said. "The expectations for the upcoming ECB meeting are very high, and he must say something really significant.

"Right now, it's clear that sentiment is clearly turning in gold's favor," UBS said in a note. "But it's also clear that despite last week's inflow of fresh longs, some hesitancy abounds." The bank noted, "a much bigger pool of investors, while starting to pay attention to gold again, are biding their time before getting long. Investors are playing the waiting game, looking for the signal to get back in." UBS said that the signal for most investors would be U.S. quantitative easing.

According to Juerg Kiener of Swiss Asia Capital, investors would need to keep at least 10 to 30 percent of their portfolio in physical gold to preserve their wealth when money starts losing value amid expectations of further stimulus measures from major central banks.

"Because the purchasing power of money is being totally destroyed during the monetization period, and if you look at the last few monetization periods, the purchasing power of the dollar lost about 30 percent," Kiener said. "So if you lose 30 percent within a short period, a 30 percent of something which preserves your purchasing power is actually equalizing your losses on the rest of your portfolio."

 (Sources: "PRECIOUS-Gold slips below $1,620/oz as euro retreats," Reuters, July 30, 2012; "Gold seesaws after three-session gain," MarketWatch, July 30, 2012; "Is Easy Money Eroding Your Wealth? Park 30% in Gold ," CNBC, July 29, 2012)

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