Gold passes $ 2,000 by the end of this year

Dr. Valentina Grigorova - Gencheva graduated Sofia University "St. Kliment Ohridski" in 1990 with major "Old and Medieval History". She specialized Ancient History and Numismatics and defended a doctoral thesis at the University of Fribourg, Switzerland. Since 2001 she has been working for First Investment Bank.

Mrs. Gencheva, days ago the price of gold passed $ 1,800 per troy ounce. Do you think its price shall increase more?

It is entirely possible by this year's end the gold to reach and even pass the price of $ 2,000 per troy ounce. We expected the levels of $ 1700 - $ 1800 to be reached at the end of this year, but unusual for the summer period August turned to be the month of the "gold rush". Gold surpassed the forecasts of all analysts. It is known that in times of crisis and recession, such we frankly are speaking of now, gold becomes a refuge for investors and stability of investment portfolios.

U.S. and European print lot of money. Does it raise additionally the price of the precious metal?

Of course, it raises it. The more money is printed, the more investors receive a clear signal of inflation, which inevitably drives them to the gold markets to secure their portfolios. On the other hand, the slow actions of politicians, or rather their inaction, and the increased interference in the economy through political decisions also make people buy gold. Obviously, now the world and the economy need more effective measures to end the crisis and at such time the metal plays its traditional role by providing insurance to investors and stabilizing their portfolios.

In the last year the central banks started again to buy gold and to increase their gold reserves. Why?

In such situations of recession, the major market players such as central banks buy gold. Only for 2010 gold bought the central bank of Mexico, Russia 18.8 tons, India also dramatically increased its reserves back in 2009 and South Korea recently bought 45 tons. It is interesting that China and Russia which are the countries with the highest production of gold at the moment, did not go to the market to sell it, but stored it directly in their central banks. Furthermore, Brazil, Russia and India along with China and South Africa are countries - members of the BRICS group. They increased their gold reserves, and this obviously is not an economic or financial improvisation. I think it is possible these countries to create a reserve currency that is secured by gold reserves and shall no longer use the US dollar in payments among themselves.

Who holds the most gold in the world – the banks, the jewelry or the investors?

Gold which is owned by countries and international financial institutions is 30,652 tons. Jewelry holds 52% of the total extracted gold in the world, the central banks hold 18%, investors hold 16-17%, the industrial gold that is part of the space industry, the high technologies and computer industries is 12 %. And the gold that is not accounted and is in different possessions, is 2%.

Some financial experts advise not to buy gold, while others - the opposite. Who we should believe to?

Over the past few days there were tendentious statements of prominent financial experts that it is crazy to buy gold or that now was not the right time to buy gold. Since 5 years, many experts have been stating so. They said that $ 1,000 would be the absolute threshold for the price of gold. We see that this is not true. The political and economic instability in recent months on global level increased the price of that metal. Gold holds a stable upward trend, which accurately reflects the development of currencies and the rise of the economies in the world.

It is possible that at some point the gold turns to be another bubble?

The physically available gold can hardly be a bubble as now the price of its extraction is about $ 1,100 per troy ounce. There cannot be a bubble where the difference between the sale and the production cost is only 500-600 dollars. Bubble could be for gold in the form of shares and certificates as it is obvious that there were issued more securities than the physically available gold in the world. The aim of these tools is rather a short-term speculation.

Is there an increased demand for the metal after reaching its record price and what is the largest amount of gold purchased by a customer last week?

In Bulgaria we had a major "gold rush" influenced by the stock markets, and not only in the big cities but across the entire country. Last week, we at First Investment Bank reported a triple increase of transactions from the first week of August. Many customers even bought between 3 and 5 kg of gold. Usually, in Europe investors buy in times of market boom, while in Asia they do it when gold reaches its lowest levels. It seems they wait for peculiar stress tests on the market and when the risk became higher, they rush to buy gold.

Are there cases where people withdraw savings from their deposits to buy investment gold?

Yes, definitely some customers say they want to withdraw savings from deposits which do not have sufficient income for them. There are customers who hold several deposits in different banks and they close some of those deposits and invest in gold. Such cases are becoming more common. The reasons are that the interest rates on deposits, for smaller deposits, are no longer attractive as income and the inflation devalues what people receive as interest on their deposits. At the same time gold guarantees them stability. Usually, these are customers who do not expect large costs in short-term period and possess real property.

Many Bulgarians do not know the difference between investment gold and jewelry and when they hear that the price of gold has increased on the stock exchange, they run away to sell their rings. What would you advise them?

For the buyback the difference in profit is very high, if only because of the different sample of the metal. The investment gold is bought back at prices up to minus 10% of current stock prices, while for jewelry gold the prices are fixed per gram. Most people have 14 carat gold jewelry, which is very low and is bought cheap. People who want to preserve the value of their money should buy investment gold. Jewels have rather sentimental value.

How to know when is the best time to buy investment gold?

It is best to buy at lower prices, but on the other hand, time has proven that any moment is good because the trends are upwards. In the end, the present moment is also good, if we consider that the analysts expect by the year-end the gold to rise up to $ 2,000 per troy ounce. You should know that gold is a long-term investment. It is not an instrument for short-term games and speculations on the stock exchange. It is important to wait for a period between 1 and 5 years to receive the real profit and see the real results from the investment in gold. For a serious investment one must start from 0.5 - 1 kg and more in order to feel the effect of price increase and the profit can be attractive even at buyback in long-term period. The lowest threshold for a serious investment is 250 grams.

What can you tell us about the market for buyback of gold in our country?

Currently an Estonian company is carrying out the buyback of gold in Bulgaria. If a customer comes to Fibank wishing to sell more than 100 grams of investment gold, we shall render agency for such customer. Raiffeisenbank is also doing buyback of gold. On the other hand, the export of gold by private individuals is completely free. All that is required when leaving the country is to declare the metal. Gold is exempt from VAT, no customs duties and excise duties are paid on gold and there is no quantity limits.