What's Driving The Gold Price?

Folker Hellmeyer, born 1961 in Hamburg, is a banking professional who started his career as foreign exchange trader with Deutsche Bank in Hamburg (1984 – 1987) and London (1988 – 1989). From 1990 to 1995 he worked as an OTC broker in the interbank foreign exchange market at Bierbaum & Co. GmbH & Co. OHG. In 1995 he went as a senior analyst to Landesbank Hessen-Thüringen GZ (Helaba) in Frankfurt. Since April 2002 he has been chief analyst with Bremer Landesbank, where he is responsible for the Foreign Exchange and Money Market Sales department.

In his book “Endlich Klartext” (“At last, clear text”), that was published in 2008 at the Finanzbuch Verlag in Munich, Hellmeyer takes a look behind the scenes of our financial system. His critical analysis provides the reader with an equally entertaining and informative insight into the U.S. financial system and its political background. The functions of the free market, the policy of the central and commercial banks and the role of rating agencies are critically examined and reviewed.

What follows are some of his thoughts on the gold market.

First of all, gold is not in a bubble, silver is not in a bubble, precious metals are in general terms not in a bubble. That's the first statement. If there is a bubble, it's in Triple A rated Treasury papers, whether from Germany or United States. Precious metals are in demand for very simple reasons: We have an inflexible supply due to a lack of exploration and we have an increasing demand due to various factors.

One factor is definitely the debasement of the U.S. dollar. The second aspect is that the global wealth is increasing quickly, in particular in the emerging market countries. 5 billion of the world population are having higher living standards and thus are consuming more precious metals. Thirdly, and that is very important: smart central banks start to accumulate gold rather than accumulate printed paper from the United States. That means we have a strong demand growth with an inflexible supply. Those are the drivers of the gold price.

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