The sheltering hedge of gold
Updated: 2010-05-26 07:19
By Oswald Chen(HK Edition)
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It's a well-known fact that glittering gold not only offers glamor and status to metal investors, but also, and perhaps more importantly, as market jitters are rattling currencies, provides a safe haven to investors - especially now, when so many are wary of wobbly markets, volatile currencies, government bailouts and challenged practices of companies like Goldman Sachs.
To assure protection of investment portfolios, gold will be the vital alternative asset that can shield investors from market volatility.
That is what retail gold investor Andrew Wong thinks.
"I started to invest in gold in 2003 when gold was fetching around $400 an ounce, because I was astonished by the debt-load the US economy. I started to worry that the global economy would experience stagflation, so that gold would be a good alternative asset for my portfolio." Wong told China Daily.
"As gold prices exhibited an increasingly-steep uptrend, I made a heavy bet on gold when its price rose to the $900 an ounce level. Currently, gold investment occupies 20 to 25 percent of my total investment portfolio. Though gold does not bring any yield returns like dividends or coupon interests, the metal has tremendous appreciation potential," Wong said.
The decade from 2000 to 2010 has witnessed a staggering rising trend in the price of gold. In 2000, it was below $300 per ounce level. From 2003, the metal started to rise and broke the $500 an ounce level in 2006. Its price finally reached the psychological barrier of $1,000 an ounce for the first time in 2008. Then the metal's price retreated somewhat. With the onset of the recent European debt crises, gold prices have risen again and even reached the historical high level of 1,237 an ounce this month. Since October 2009, the gold price has never retreated to a level lower than $1,000 an ounce.
"For the next 2 to 3 years, the US and European economies will not achieve a solid recovery, and we do not know whether the debt problem will spill over to other European economies; therefore, market sentiment will tend to favor gold investment." Anderson Cheung, deputy managing director of Mitsui Commodity Risk Management told China Daily.
He predicted gold will exhibit a continuing rising trend, as its price will first hit the level of $1,300 to $1,350 an ounce in the medium term, while the metal's price may reach the level of $1,400 to $1,500 an ounce in the long run.
However, other financial analysts said that gold may be over-bought in the short run so that its price may undergo a correction in the near future.
"As hedge funds are selling gold and use the proceeds to increase liquidity and the European debt crisis is still being contained for the time being, the price of gold cannot sustain a level above $1,200 an ounce." Alan T.L. Luk, head of Investment Advisory of Hang Seng Bank, told China Daily.
Both Luk and Cheung said that when gold prices correct to the level of $1,000 to $1,100 an ounce, gold will be considered to be a good bargain for long term investment.
They also agreed that gold investment will play an increasingly important part as an alternative investment in asset allocation and management.
China Daily
(HK Edition 05/26/2010 page3)