Aversion to Fiat Currencies Boosts Gold

Aversion to Fiat Currencies Sends Gold Above $1000/oz: Boost from QE

* Citigroup: Gold may test $2000/oz in summer 2009 due to ongoing financial turmoil and as massive liquidity injections by governments stir inflation

* UBS: Physical gold market considers gold attractively priced at c.$700-$800/oz but search for a store of value is pumping up demand from non-commercial buyers (speculators)

* Merrill Lynch: 0% short-term rates are bullish for gold. Gold will not only serve as a refuge in its role as a store of value, but is a useful hedge against deflation as well since deflation is inherently destabilizing for financial assets (in that deflationary period form 2001 to mid-2003, gold managed to rally more than 30%), not to mention the prospect of a return to a dollar bear market. Gold is inversely correlated to global short-term interest rates and there is a race right now towards 0% (Taiwan recently cut 25bps to 1.25%). Bullion is trading at a 7-month high and for good reason: supply and demand. Production is down 4% YoY while fiat currencies globally are being created at a double digit rate by the world's central banks, and we see that according to the World Gold Council, even with the recession in India, gold demand soared 26% YoY in 4Q08 (to 1,036.5 metric tons from 821.8 tons a year ago). As for all the talk of a 'gold bubble', it would take a nearly 625% surge in gold to over $6000/oz and a flat stock market to actually get the ratio of the two asset classes back to where it was 3 decades ago when bullion was in an unsustainable bubble phase

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