Special Report Gold

The following quoted from ERSTE GROUP paper - 91 pages



The fact that not many market participants actively participated in the last high of the gold price in the 1970s is a positive aspect. This is probably also why the majority of investors still doubt the sustainability and justification of the bull markets although we are in its tenth year. In
the 1970s it was an unwritten law to invest at least a fifth of one’s portfolio in gold.

“I prophesy that in 1950 every Treasury in the world will be talking about my ideas, and by that time, of course, the problems will be quite different, and my ideas will be not only obsolete but dangerous.” John Maynard Keynes

Gold, as antagonist of uncovered paper currencies, remains an excellent hedge against
worst-case scenarios. Low real interest rates and high counterparty risk provide the perfect environment for gold. Both are clearly the case at the moment, and we expect this scenario to last. At the current real interest rates, gold is an obvious alternative to short-term government bonds, current accounts, or time deposits.

After many years of a chronic low-interest-rate policy, we do not believe that interest rates, along the lines of Paul Volcker’s, would be possible without the system collapsing. Therefore this time the gold bull market should end for different reasons than at the beginning of the 1980s.

“If you don't trust gold, do you trust the logic of taking a pine tree, worth $4,000-$5,000, cutting it up, turning it into pulp, putting some ink on it and then calling it one billion dollars?" Kenneth J. Gerbino

July 2011 - In the short term, the seasonality of the gold price seems to suggest the continuation of the
sideways movement, followed by the strongest seasonal period in September. In the long run we could see a future where rather than asking for the price of gold, people will much more often ask for the price in gold.

Our next 12M target is USD 2,000. We believe that the parabolic trend phase is still ahead of us. This phase should take the gold price to our long-term target of at least USD 2,300 at the end of the cycle.
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