Lynch says rich turning to gold bars for safety By Ambrose Evans-Pritchard
Last Updated: 10:32AM GMT 09 Jan 2009
Lynch has revealed that some of its richest clients are so
alarmed by the state of the financial system and signs of
political instability around the world that they are now insisting
on the purchase of gold bars, shunning derivatives or "paper"
Dugan, the chief investment officer for the US bank, said
there has been a remarkable change in sentiment. "People
are genuinely worried about what the world is going to look
like in 2009. It is amazing how many clients want physical
gold, not ETFs," he said, referring to exchange trade
funds listed in London, New York, and other bourses.
"They are so worried they want a portable asset in their
house. I never thought I would be getting calls from clients
saying they want a box of krugerrands," he said.
Merrill predicted that gold would soon blast through its
all time-high of $1,030 an ounce, and would hit $1,150 by
The metal should do well whatever happens. If deflation sets
in and rocks the economic system it will serve as a safe-haven,
but if massive monetary stimulus gains traction and sets off
inflation once again it will also come into its own as a store
of value. "It's win-win either way," said Mr Dugan.
He added that deflation may prove the greater risk in coming
months. "It's very difficult to get the deflation psychology
out of the human brain once prices start falling. People stop
buying things because they think it will be cheaper if they
Merrill expects global inflation to hover near zero, with
rates of minus 1pc in the industrial economies. This means
that yields on AAA sovereign bonds now at 3pc will offer a
real return of 4pc a year, which is stellar in this grim climate.
"Don't start selling your government bonds," Mr
Dugan said, dismissing talk of a bond bubble as misguided.
He warned that the eurozone was likely to come under strain
this year as slump deepens. "There is going to be friction
as governments in the south start talking politically about
coming out of the euro.
I don't see the tensions in Greece as a one-off. It is a sign
of social strain in countries that have lost competitiveness."