As Gold Soars, Is It Too Late to Cash In on the Rally?
Fears that the past weekend’s $1 trillion European rescue package will ultimately drive inflation resulted in investors piling back into gold.
Much of that demand is reportedly coming from Germany, where the memory of hyperinflation between the two world wars continues to significantly influence thinking.
The price of gold is at an all-time high, with demand at its highest level since the collapse of Lehman Brothers.
UBS said demand for gold coins is so high that supply is struggling to match demand and gold producers are ramping up production of coins to cash in on fears over rising inflation.
Gold is currently benefiting from the belief that central banks cannot raise rates, said Monica Fan, senior currency product engineer at State Street Global Advisors.
“Politically it would be very unpalatable to raise rates raising fears over inflation," Fan said. "With so much uncertainty out there gold has become a de-facto currency.”
Fundamentals for gold remain strong given the rise of the middle class in Asia, and the "long term trend is bullish,” she said.
Stephen Perry, the chairman of The 48 Group Club and a China watcher, agreed that gold is likely to head higher.
“The economics of the world have changed drastically over the last three years," Perry said. "With so much uncertainty unresolved, gold will be a hedge against uncertainty.”
For the next six to nine months, gold could be a better hedge against inflation than traditional inflation hedges like the money markets and property, he added..
In addition to gold, silver will also rise, Chris Zwermann, the global strategist at Zwermann Financial in Frankfurt, said.
“Silver has broken through a key technical level and will make big gains over the next few days,” he said.
But not everyone agrees.
- Watch the video above for the full interview with Chris Zwermann.
There is no risk of inflation, instead concerns should be about deflation, Jochen Wermuth, the managing partner at Wermuth Asset Management told CNBC.
“When this trend becomes apparent gold will fall,” he said.
Investors should buy long-term puts to protect against lower gold prices over the medium term, Aaron Gurwitz, head of global investment strategy at Barclays Wealth, told CNBC.com.
“Prices may go higher from here, but ultimately they will fall and investors need to protect themselves,” Gurwitz said.