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The Warsaw Voice » Business » April 26, 2012
Business & Economy
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The Lure of Gold
April 26, 2012   
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The global gold rush has arrived in Poland. Experts estimate that a total of 5.6 tons of gold may be sold in Poland this year, almost twice as much as in 2011.

Gold has fascinated people since times immemorial. The oldest known artifacts made of gold date back to 6,000 BC. Throughout millennia, gold was a symbol of purity and value. It was the attribute of kings. Today, gold is used in jewelry, industry, electronics and medicine. It also plays an important role in the economy. Gold, like real estate, is considered to be a “hard asset.” There is a good reason why people say that this precious metal is a safe investment for turbulent times. This was evident during successive stages of the 2008 crisis—while real estate prices were nose-diving, the price of gold was steadily going up.

Almost 1,500 tons of gold were sold worldwide in 2011, an increase of around 25 percent compared with the previous year. In September 2011, the price of gold crossed the barrier of $1,900 per ounce for the first time ever. Why are prices so high? One reason is that, in contrast to money, governments cannot print gold. Another is that the world’s gold reserves are limited, while extraction costs are on the rise. And when financial markets are volatile many central banks decide to augment their gold reserves, which additionally pushes the price of this metal up.

It is not only banks and large corporations that are rushing for gold. Retail investors are also doing so, convinced that such investment will safeguard their wealth against turbulence on financial markets. Polish people are no exception—their interest in investing in gold almost doubled in 2011 compared to 2010.

The World Gold Council predicts that the gold market will strengthen in 2012 due to high inflation and low interest rates. Ben Bernanke, chairman of the Federal Reserve, has said that this trend will continue until 2014. The key investments in gold will be made in Europe, which has seen its economic situation change dramatically in recent years. Volatile markets, coupled with the specter of eurozone disintegration, discourage Europeans from risk-taking and lead them to safer investment opportunities, like precious metals. There is also growing demand from China and India, which are major gold consumers even when their economies slow down.

Since the price of gold is increasing, some analysts have warned of a speculative bubble which may soon burst. But Poles do not seem worried and are eagerly investing their money in precious metals. The Mennica Wroc³awska company, one of Poland’s largest distributors of gold and silver for investment purposes, predicts that the Polish market for investment gold will expand rapidly in coming years, with the sales volume estimated to rise from 3 tons in 2011 to 5.6 tons in 2012.

Mennica Wroc³awska analysts say the market for investment gold is only just emerging in Poland and a sharp increase in demand for the metal may be expected in coming years. “The potential of the Polish market may be estimated by comparing it to the markets of neighboring countries, especially Germany,” says Mariusz Malec, president of Mennica Wroc³awska.

Last year, demand for gold in Germany reached 160 tons, according to the World Gold Council. Mennica Wroc³awska analysts say that if Polish people invested only 1 percent of their savings in gold, the Polish market would grow to 52 tons. And if they spent 3 percent of their savings on gold bars Poland would catch up with Germany in terms of annual sales of the metal. The number of people interested in investing in gold is on the rise. Mennica Wroc³awska estimates that from 30,000 to 40,000 Poles bought a gold coin or bar in 2011.

Polish people choose gold as an investment opportunity because for years they have seen its price rise irrespective of the economic situation or the situation on the stock exchange. Last year, even the threat of Greek, Spanish and Portuguese bankruptcy did not undermine the price of gold. “Last year, the price of gold exceeded the level of $1,900 per ounce, reaching an all-time high of $1,921 per ounce in September,” says Piotr Wojda, vice-president of Mennica Wroc³awska. “This does not mean, however, that it is impossible for the price of this metal to grow even higher.”

Another reason why interest in gold is growing in Poland is that more and more financial institutions are offering it to their retail clients. One of them is Alior Bank, which sells gold bars delivered by Mennica Wroc³awska. But it is Mennica Polska, a company whose tradition dates back over 245 years, that has the largest share in the Polish market for investment gold. Mennica Polska is one of the world’s leading producers of coins and other numismatic items. The Inwestycje Alternatywne Profit company is also an important player on the market.

The crowds of people who wanted to see the 1933 Double Eagle, the legendary 20-dollar coin minted in the United States in 1933 and displayed in Warsaw for two days in March, showed just how much Poles are interested in gold. The 1933 Double Eagle holds the record for the highest price paid at auction for a single coin – almost $8 million. Nearly 500,000 such coins were minted in 1933, but only 13 are known to have survived to this day. The rest were melted down even before they went into circulation in order to help the United States out of the Great Depression. Most of the existing coins are now owned by the U.S. government. Only one coin is in private hands.

The Double Eagle was displayed in Warsaw during part of an European tour, which began in Britain in March. The tour was organized by Samlerhuset Group BV, whose Polish subsidiary is Skarbnica Narodowa. The Double Eagle coin was on loan from the Smithsonian Institution in Washington, one of the largest museum and research complexes in the world.
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