-- Posted 3 October, 2011 | | Discuss This Article - Comments:

So the news is out that Qatar is planning a $10 billion investment in gold producers, according to The Daily Telegraph today citing banking sources. The ArabianMoney investment newsletter published last week is already there with a comprehensive report on how its readers can achieve this exposure (subscribe here).

On Sunday the nation’s sovereign wealth fund Qatar Holdings confirmed rumors that it is set to invest $1 billion in European Goldfields which is developing a large mine in Greece and publicly quoted in London. Some commentators interpreted this as a rescue plan for Greece but access to physical gold at low cost is the real reason.

Gold study

Bankers who put the deal together said the Qataris had commissioned a ’systematic and detailed study of the gold sector’ and like European Goldfields mainly for its chairman Martyn Konig who is a 30-year veteran of the sector, exceptionally qualified to lead their expansion into gold.

He is going to pursue acquisitions in Africa and Russia and not in the US where the Telegraph says ‘valuations are too high’. Qatar Holdings has just bought a 9.9 per cent stake in European Goldfields with Credit Suisse advising them.

Far from seeing the recent correction in the gold price as the end of the bull market, the Qataris clearly think there is life in this bull yet, and are apparently planning acquisitions spread over years rather than months, weeks or days.

This will be music to gold investors who have blazed a trail in emerging markets like Jim Sinclair in Tanzania. It also shows a new twist in the gold investment game. For obtaining gold sector assets at reasonable prices now entails taking more risk and all assets in this sector will be driven higher in value over time.

Powerful investors

That a financial force like Qatar is backing gold surely heralds much higher prices for the metal itself as this scale of investment in the narrow gold market tend to have a self-fulfilling impact, particularly when followers join in from the Middle East and elsewhere.

Somebody asked why the Qataris are not looking for silver mines? Well silver tends to be produced as a by-product of large copper mines and they are very expensive and closely held. That makes it far more difficult to ramp up silver production than gold, and with silver reserves already less than a hundredth those of gold the price implications are interesting to say the least.

But who knows the Qataris may have plans for the silver market too. With $10 billion Qatar could take a third of the global silver market and exercise the domination of the Hunt Brothers in 1980. Could history repeat itself again?