Emirates NBD gold deposit scheme, first sign of mania stage for gold?

Posted on 11 December 2010 with 2 comments from readers

You have to wonder whether gold and silver are about to enter a final mania stage of their long bull run when the largest bank in the Middle East comes up with a gold deposit scheme to tempt investors.

At the end of last week Emirates NBD proudly trumpeted its gold investment scheme which largely mirrors the Perth Mint depositary system. For good measure the bank is apparently recruiting several hundred new staff to flog its new investment products.

Now when any investment class that has gone up a lot in value gets into the hands of the retail investor this is normally a sign of an end game. Retail investors only ever buy into an asset class late in the investment cycle. They after all want to know that they are completely safe and a good track record is the final proof.

Warning signal

Those buying early in this stage (and later selling early too) will do very well. But for the professional investor it is a warning sign as big as a large red label saying ‘getting too hot’. For once retail investors get the gold bug the price will really fly.

Is Emirates NBD already late for this particular party? Well, just to quibble the product launched last week is not new at all, the bank has had a gold certificate product for as long as ArabianMoney can remember. It has just not chosen to put its marketing effort into promoting it, still we can ask is this late in the day for this promotion?

Probably not. The gold price is a bit high at around $1,400. But if you look at the 10-year chart there is no sign of a big price spike like oil in July 2008, for example. However, if the price is driven up to $1,650 by mid-2011 as gold guru Jim Sinclair predicts (and he made this forecast eight years ago) then gold could be heading for a correction.

The latest edition of the ArabianMoney newsletter is all about investing in gold and silver for 2011 and how to play this market but as our subscribers will have noted we do see an unusual twist in this market that readers need to get right to profit in the New Year. New subscribers will get a free copy of the December edition (click here).

Boom and bust

The Emirates NBD gold scheme is reminiscent of the same bank’s UAE mutual fund which used to be popular before the stock market crash in 2006. In 2005 the Dubai Financial Market was the world’s best performing stock market and then it was not.

‘When you have a great deal of economic uncertainty, going into paper assets, whatever they may be, stocks, bonds, other types of equity is not attractive,’ wrote Dubai International Financial Centre chief economist Nasser Al Saidi last week. ‘That makes gold more attractive.’

Saidi’s co-author Fabio Scacciavillani added: ‘The value of paper money is being debased by injections of quantitative easing in Europe, Japan and the US. Gold is a means of exchange not dependent on any political decisions and has a role as a hedge against inflation and economic risk.’

Yes, they have finally got gold, and the price is going up. But as George Soros pointed out recently rising interest rates are not good for gold and that could be what soon pricks this bubble, though that will only be at a much higher gold price.