Price of gold is on the decline, analysts predict
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Gold, as an investment, has had a bad year and will probably continue to disappoint investors next year. But Asian consumers are unperturbed, as they see the sharp decline in bullion prices as a golden opportunity to stock up on their hoards of the precio
The benchmark spot gold price in New York had dropped 22 per cent year-to-date at US$1,287 an ounce on Saturday and was heading into its first annual loss in more than a decade.
Some analysts predict prices will fall even lower in 2014, with Goldman Sachs’ commodity research head Jeffery Currie declaring gold a “slam dunk” sell for next year.
Currie also says that gold may “overshoot” below the $1,000 mark in the near term as fund managers and savers in the West continue to unwind their positions in gold investment products ahead of the US Federal Reserve’s plan to taper down its monthly bond-buying programme.
HSBC chief metal analyst James Steel announced that “gold’s more-than-decade-long bull market ended this year.”
The price of gold has had a spectacular run up since the start of the new millennium, but gold’s shiny investment status as the safest bet at times of crisis may have run its course, at least in the West, as risk appetite return for fast-money fund managers.
Since the burst of the US dotcom IT bubble in 2000, the price of gold has soared from $300 an ounce to a dizzying height of US$1,920 on September 6, 2011. The bullion more than doubled its value from early 2007 to mid-2011 after the Lehman Brothers collapse and the start of Greek crisis in the eurozone.
Gold supporters in past years argued that loose money-printing programmes by central banks in developed economies to jumpstart growth, will fuel inflation on a global scale that will render paper currency useless everywhere.
It was the fear of an imminent economic collapse in 2009 that drove investors into gold as they sought to protect their capital and ride out the unfolding turmoil in the West. But as the worst of the recession passes, gold increasingly loses its shine.
Analysts say as the outlook for the global economies brightens in recent months, billions of dollars that were poured into various sophisticated gold investment products have been pulled out and shifted into equities and other riskier investment classes. The demand for gold, which pays no dividends and is just a store of value, suddenly vanished.
The steep fall in April this year plunged gold into bear market territory and marked a remarkable turnabout for the precious metal. Even some of its strongest supporters, including billionaire hedge fund manager Paul Johnson, halved his stake during the second quarter of this year in SPDR Gold Trust, the biggest gold exchange-traded fund (ETF) following the rout.
The gold market has had its share of spectacular booms and busts before.
Nobel prize winner for economics Paul Krugman wrote that gold historically has been anything but a safe investment, and can sometimes yield big gains as in the 1970s and the period between 2001 and 2011. But he noted that the 1970s run up was followed by “an epic plunge” with the real value of gold falling by two-thirds.
Stock investment guru Warren Buffet too had said that he was never a fan of gold as an investment. He argued that gold doesn’t do anything and he would rather put his money in more productive ventures such as a farm or a company.
