Nov 13 2009 4:11PM

Gold, sitting just under its all-time record high, captures most of the headlines in the metals realm. The growing awareness of the frailty of the U.S. dollar is keeping bullion in the minds of many investors. In the same way that investors loaded up on gold as a safe haven at the height of the financial crisis, investors now see gold as a hedge against declining currency values.

That investor interest is reflected in gold ETF holdings, which rose to a record 1732 tonnes at the end of September, according to the latest figures from the World Gold Council. Those 56 million ounces are worth $58 billion at the current price.

Gains in investor holdings were offset by decreased jewelry demand. The WGC has not yet compiled figures for the third quarter, but second quarter figures showed the volume of gold jewelry consumption dropped 22% from a year ago. Demand was down everywhere except China, which saw growth of 6%.

Mine production reverses an eight year down-trend in the first half, expanding by 6% to 38.7m ounces. China was a major contributor to the gain, reinforcing that country’s position as the world biggest producer.

According to the World Gold Council: “Net official sector sales in the first half of 2009 amounted to just 38.7 tonnes, down 73% from H1 2008 – the lowest half yearly figures since H1 1997 when net sales were just 38.0 tonnes. Central banks outside of the CBGA have been net purchasers of gold since the second half of 2006 and bought a net 53.1 tonnes of gold in H1 2009.”

Silver has magnified the gains in gold this year. Starting the year at $11, silver is up 50% on the year to just under $17.

Copper, sitting just under $3 a pound, attracts the small amount of attention directed to base metals. Few investors have noticed that lead and zinc are both over a dollar a pound, not far from their all-time highs. Nickel has doubled from its lows earlier this year, even though it is still far below the highs of a couple of years back.

Investors are paying more attention to metals now, but there are still outstanding values among the small companies.

Lawrence Roulston

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