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As the US and other European economies flirt with recession, investors, banks and savers have turned to gold to protect their assets. Rolf Schneebeli, economic adviser for ARY gold firm and former head of the World Gold Council, tells Gulf News why gold is considered a safe haven during dire times.
Gulf News: With the global banking crisis boosting gold's appeal as a "safe" reserve asset, do you see central banks diversifying their reserves away from the US dollar?
Schneebeli: Gold will definitely see a revival as reserve asset for central banks. The main purpose for the central banks when investing is not to generate the highest possible return on assets, but to provide a safe and sound financial basis for the currency and the economy built on it. Suitable central bank assets must be universally recognised, must provide a liquid market that is deep enough to absorb major transactions.
Looking at currencies, not many of them are possible assets. The only alternative to the US dollar is really the Euro. The pound sterling is probably not strong enough anymore. The yen and the Swiss franc, both strong currencies, do not have enough depth (i.e. volume) to ensure liquidity also in difficult and unforeseen instances, and the Chinese Remimbi is not convertible. Hence, gold is really the only alternative to the dollar and Euro.
In addition, gold is really nobody's liability. This means one is not at the mercy of other governments. In the case of gold, this is quite difficult. To balance the needs of liquidity, security and return generation, it is certainly advisable to all central banks to have a decent diversification across these assets.
Gulf News: Will gold prove to be a safe haven for ordinary consumers as well?
Schneebeli: Gold has a place in everybody's portfolio. Many investors had forgotten the lessons about the need for diversification of assets. Yes, there is always one asset that has the best performance, but unfortunately, one only knows afterwards, and such assets with very high return expectations also are having higher risk attached to it. There is only one way and that is investment and hence risk diversification. And gold must be part of it.
Gulf News: What is your gold demand forecast for the UAE?
Schneebeli: The demand has already and will continue to increase. This is on all levels, namely on the investment level for investors holding accounts outside the country as well as within Dubai. Here, we would be looking at increased demand for ETFs (exchange traded funds), coins, as well as ultimately gold stocks, just as Dubai Holding has bought 20 per cent of Citigold, a gold mine in Australia. Also, retail investors will continue to buy gold on dips below the current level.
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