Nervous gold traders say investors should hold their nerve when buying gold as the precious commodity is still good value despite the World Gold Council condemning speculators for the recent plunge in value.
The council’s chief executive, Aram Shishmanian, said the headline-grabbing drop in the price of gold – with the recent biggest daily fall for 30 years – was down to speculators.
He said: “It is clear that the falling price of gold was triggered by speculative traders operating in the futures markets.”
He blamed their bid to generate profits for the price collapse and pointed out that buyers are now moving back into gold with sales surging in the US and China as well as Europe.
Gold is now at a price not seen for several years – and it’s still 70% higher than that in 2008.
Price will rise
There are already shortages of coins and bars in Dubai while some buyers in Mumbai and Shanghai are paying a premium over gold spot prices.
However, one gold expert who predicted the current drop in value says the precious metal could fall by another 30%.
Alan Miller, of wealth management firm SCM Private, said gold was a dangerous asset to hold in January because of weak signs in the world’s economic global recovery.
He said: “Gold still has further to fall as few investments defy Newton’s Law of Gravity after a price spike.”
He said that gold is still relatively overpriced and has inherent fundamental problems in valuation.
Buying opportunity
In the opposite corner is Mouhammed Choukeir, of private bank Kleinwort Benson, who says that investors should keep gold in their asset portfolios – even though the price is still likely to drop further.
He explained: “In times of financial stress, gold has defensive characteristics and is more sensitive to inflation than other assets so our rationale for keeping gold in multi-asset portfolios remains.”
Mr Choukeir also highlighted that unexpected events can hit global markets with remarkable speed and said it was likely that the markets would again be hit by something else which can’t be predicted.
His views are backed up by Gary Dugan, of private bank Coutts, who is expecting gold to fall further – possibly bottoming out at $1,250 per troy ounce though this is still a good buying opportunity for investors.
He said: “The recent gold sell off was an exaggeration and the price of gold presents a good buying opportunity with some central banks also thinking of buying at this level.”
