Wednesday, September 5, 2012

Gold prices rally on hopes of US stimulus moves


SINGAPORE : Gold is once again in the limelight.

The price of gold, which rallied about 10 percent since May, is expected to climb further as the prospect for more central bank stimulus actions continues to boost demand for the metal.

With gold trading at a five-month high in recent sessions, analysts say its price could rise to US$1,900 per ounce by the end of the year, up from around its current price of US$1,695.

This, after Federal Reserve Chairman Ben Bernanke said last week that the US central bank is open to "additional policy accommodation", such as greater bond purchases as an option to lift the flagging US economy.

As gold and the greenback traditionally tended to move inversely from each other, gold is price-sensitive when it comes to any talk of possible quantitative easing measures.

Surendran Chelliah, Investment Analyst, Standard Chartered Bank, said: "Besides expectations for further easing by the US Fed, we are also looking at what the ECB is going to do on September 6, as well as how data is coming out especially US inflation expectations. That's actually starting to crawl up. So these are the factors driving up gold prices."

While analysts recommend that investors hold some gold in their portfolio, they caution about the risk and the frequency of gold price corrections.

Vasu Menon, VP, Wealth Management Singapore, OCBC Bank, said: "Gold is something that every investor should have in their portfolio, perhaps 4 to 5 percent of the total portfolio if investors have a good risk appetite. But investors should remember that gold is an extremely volatile asset class."

Investors are not the only ones increasing their gold holdings.

According to the World Gold Council in August, central bank purchases of gold have more than doubled in the second quarter as governments turn to the precious metal to hedge their bets against unfavourable macroeconomic changes.

Meanwhile, another metal to look out for is silver which has outperformed gold in recent weeks as investors piled into precious metals to hedge against inflation and currency risks.

But analysts say there is a distinction to be made between the two metals.

Silver, which is both a precious and an industrial metal, is recognised as a far less liquid asset than gold.

Nick Trevethan, Senior Commodities Strategist, ANZ Research, said: "Silver's exposure to the industrial market - where stimulus might be supportive of demand going forward - does mean that it has some opportunities there for the investors. But it is a far riskier, far more complicated asset than gold."

The spot price for silver has risen nearly 16 percent since the start of the year, compared to gold which rose 8 percent in the same period.

  
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