Gold is expected to continue its steady northbound trajectory and could likely breach the $2,000 (Dh7,350)-per-ounce mark if current market fundamentals persist, according to a Saxo Bank analyst’s near-term outlook.
Ole Hansen, senior commodity strategist at Ole Hansen, senior commodity strategist at Copenhagen-based
Saxo Bank, said gold’s rally this year has been influenced by the lack of appetite for low-interest-yielding assets such as government bonds. This trend is expected to stay for at least another year.
“Some of the major economies are giving very low rates, which trigger real interest rates that are negative so bond deals [offer] very little return [while] inflation [keeps getting] higher. When you have a non-interest-paying asset like gold, there’s no opportunity lost,” Hansen said on Tuesday in an interview with Alrroya.com.
Widely favoured as a safe-haven asset, gold has seen its investment sphere widening in recent years. According to Hansen, the market saw an explosive growth in gold investment from retail and private investors the past five years. However over the past couple of years, central banks worldwide have also tapped this precious metal as they diversify their investment portfolio.
“We have a magic level of $2,000 [per ounce of gold] and I don’t see any reason why we shouldn’t see that. [Gold] has not been below the 200-day moving average for the past three years and it bounces off every time it comes down. If it moves below $1,600, then that could indicate that something else is going on and there will be some further scaling back from investors,” he said.
Should the yellow metal plunge below the $1,600 mark – close to what happened in end-September when gold slipped by nearly 11 per cent to $1,620 from $1,813.50 in August 31 – Hansen said it will be interesting to see whether central banks would step in to buy more gold for their reserves.
“In September, [central banks] bought 148 tonnes of gold, the biggest quarterly amount ever bought by central banks globally. Will they do that again? Very likely. I think their buying interest will be strong because they are holding a lot of dollars and the US Treasury is yielding next to nothing so I think there’s interest in diversifying assets,” the Saxo Bank analyst said.
Bright foreseeable future for gold
Gold prices have progressed dramatically over the past four decades, according to
World Gold Council (WGC) statistics. The precious metal traded at $37.4 per ounce in end-December 1970 and by November 2011 it made a massive leap to reach $1,746. It was also in 2011 when the bullion hit an
all-time high of $1,920.30 per ounce.
A flagging global economy, poor stock market performance, low yields in other asset classes and a jittery outlook for many regions, especially the Eurozone, helped catapult gold’s investment reputation in recent years.
Saxo Bank’s Hansen believes that the current market conditions will continue to lift gold prices in the foreseeable future.
“The fundamentals, the reasons behind the rally, are still there. I think we’ll see gold perform [well] again next year, whether we’re going to see another 20-25 per cent [growth] remains to be seen,” he said.
Hansen said most research houses have expressed caution for the first quarter of 2012 at least because of the uncertain economic situation that forced the banking sector to tighten lending, which in turn affected the liquidity of speculative investors such as hedge fund managers.
But outlook for gold remains rosy and he believes the precious metal could be one of the beneficiaries of the fresh investment money that will be poured into the market by January.
Silver tarnished by massive correction
Silver made a dramatic move this year by reaching a record-high of nearly $50 an ounce in April, but it failed to sustain the momentum and has been trading within the $30 range since then.
The uptick, said Hansen, was to a large extent speculative driven. However, the massive correction it experienced left a lasting impression and could put off investors in the future.
“When you have something that just gets into this mode where it goes [up and up], a lot of new investors get involve and it [reaches] a point where you almost feel like an idiot if you’re not involved, that’s exactly what happened [with silver] and with the tech bubble in 2000,” Hansen mentioned.
Silver, an industrial metal used in the manufacturing of electronic goods, was banking on the prospects of an increased industrial demand. But weak financial data dampened industry outlook, leading to the eventual slump in silver prices.
“The industrial demand starts to ease off and the clearing houses have raised the cost of holding silver in the exchange and then it collapsed. It’s still suffering from that because that’s now in the fresh memory of people. A lot of [investors] have lost money in silver and they are not keen to get involved once again so we won’t see any big moves,” he said.
Hansen added that silver has been trading at a ratio of between 50 and 55 to gold, that is 50 and 55 ounces of silver to an ounce of gold, which suggests a bottoming out.
“If we see industrial demand pick up, i.e. the recession that everyone is fearing settles down and doesn’t get as bad as expected, then that would improve the demand for silver. But the scenario for silver this year has been so dramatic that we went from expecting a deficit of silver to [having] a surplus. Obviously that surplus first has to be consumed before the risk of any new super spike in silver would emerge,” Hansen explained.
Once the industrial demand for silver picks up, investors will feel more comfortable putting their money back into the commodity on a larger scale, the Saxo Bank analyst commented.
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