Homepage
PR Newswire
07-04-2011, 06:04 AM
My stand still remains: Gold is NOT a viable long-term asset for me as it does not generate any cash flows.
Business Times - 07 Apr 2011
Gold: Is it still a buy opportunity or a trap?
By MICHELLE TAN
AS GOLD - widely used by many as an 'insurance' tool amid economic turmoil - continues its upward, albeit roller-coaster, journey, questions are being asked whether its long climb is sustainable and whether investors ought to turn wary.
But first, why is this precious metal such a heavyweight?
Among the Japanese, it is a widely held belief that the metal acts as a 'safe haven' hedge. When the recent massive earthquake hit Japan, investors there scurried to stash up gold, spurring bullion prices to rocket upwards.
Similarly, during the last recession, gold enjoyed a stupendous climb as it garnered immense popularity as the 'perfect hedge' to downside amid a depressed market and inflationary conditions.
Furthermore, current issues such as currency devaluations, stagnant recoveries and the lurking threat of war in the Middle East and North Africa (Mena) continue to draw investors and fund houses towards gold as their de facto 'insurance' tool.
The questions being asked now are whether the gold ascent is sustainable and whether a downward spiral is imminent.
Undoubtedly, many well-known gold proponents are adamant that that this enormous gold bull market will persist given surging interest from gold demand heavyweights, China and India. It is also undeniable that the yellow metal is globally accepted as a store of value and a form of tangible wealth that protects against inflation and currency devaluation.
But with gold making media and print headlines with increasing frequency over an extended period of time, perhaps the positives have already been factored into current prices. Besides, being cast in the limelight for prolonged periods usually carries inverse connotations for the near future.
Drawing lessons from the past, Paul Macrae Montgomery observed in the 1970s that when Time magazine had a cover story about equity markets or finance-related matters, one could assume that the opposite would happen in the near horizon.
Simply put, bullish stories tended to yield negative outcomes and pessimistic ones usually had the last laugh. This could be worrying news for investors who recently hopped onto the golden bandwagon in hope of richer times ahead.
At present, most investors either invest directly in the gold bullion, or via Exchange Traded Funds (ETFs) that track the price of gold bullion.
One such locally-listed ETF is SPDR® Gold Shares (Gold Shares) which tracks the underlying index of spot gold prices - an unquestionably fair benchmark in relation to the value of the precious metal. Notably, this ETF was the first commodity-based ETF listed on the Singapore Exchange (SGX) back in 2006 and has been flirting with new all-time highs of late.
Benefits
The benefits of investing in Gold Shares as opposed to physical gold include greater liquidity and lower costs when compared to that relating to the purchase, storage and insurance of physical gold. In addition, since ETFs are traded like equity shares, the restriction of early exit does not apply.
Therefore, gold ETFs will work for individuals if their investment purpose is primed at taking benefit of short-term volatility in gold prices.
All that said, cautionary notes have been cast in the markets as technical analysts have started painting a gloomy picture for Gold Shares from a trading standpoint.
Some say that the near term performance is crucial for the ETF. If the prices do not fall below US$138.00, the uptrend for the gold ETF remains intact.
Conversely, analysts warn that should prices fall sharply to US$129.77 in the days ahead, the ETF's price may head towards US$120 or lower. In that scenario, many latecomers to the popular ETF may suffer major losses.
More worryingly, investors who bought into its less-liquid counterpart - physical gold - might be faced with a depreciative asset that is hard to dispose of quickly to cap downside losses in the event gold prices plummet.
All that said, perhaps a pertinent point that could sway the direction of the argument at this juncture is one's investment horizon. An investor who turns 20 this year as opposed to another that is about to celebrate his 70th birthday have grossly different investment horizons.
For example, gold prices may lose its hype in the next year or so but may see yet another incredible rally after.
After all, China and India's demand for gold has been nothing short of astounding. Both countries share traditional uses for gold, especially in the form of jewellery for purposes such as dowry and other auspicious affairs.
With increasing affluence and wealth among its people, the demand for gold is likely to pick up over the years as those who can afford to buy gold jewellery will buy more while those who never had the budget for it before, might do so now.
To illustrate the extent of recent growth, demand in China almost trebled to 580 tonnes in 2010 from 206 tonnes in 2001, according to data from the World Gold Council.
Should such growth persist, perhaps current gold and correspondingly related ETF prices may eventually be justified or even appreciate further in the years to come.
A younger investor is thus more likely to be around when that happens as opposed to someone who is already in his golden years. So the moral of the story is this: investors who possess shorter investment horizons should be wary against investing in gold and its related asset classes in the near term, while those with longer term horizons - such as a 20-year-old - could perhaps park their money there and stand a better chance that it might amass into a healthy retirement fund some time in the future.
Business Times - 07 Apr 2011
Gold: Is it still a buy opportunity or a trap?
By MICHELLE TAN
AS GOLD - widely used by many as an 'insurance' tool amid economic turmoil - continues its upward, albeit roller-coaster, journey, questions are being asked whether its long climb is sustainable and whether investors ought to turn wary.
But first, why is this precious metal such a heavyweight?
Among the Japanese, it is a widely held belief that the metal acts as a 'safe haven' hedge. When the recent massive earthquake hit Japan, investors there scurried to stash up gold, spurring bullion prices to rocket upwards.
Similarly, during the last recession, gold enjoyed a stupendous climb as it garnered immense popularity as the 'perfect hedge' to downside amid a depressed market and inflationary conditions.
Furthermore, current issues such as currency devaluations, stagnant recoveries and the lurking threat of war in the Middle East and North Africa (Mena) continue to draw investors and fund houses towards gold as their de facto 'insurance' tool.
The questions being asked now are whether the gold ascent is sustainable and whether a downward spiral is imminent.
Undoubtedly, many well-known gold proponents are adamant that that this enormous gold bull market will persist given surging interest from gold demand heavyweights, China and India. It is also undeniable that the yellow metal is globally accepted as a store of value and a form of tangible wealth that protects against inflation and currency devaluation.
But with gold making media and print headlines with increasing frequency over an extended period of time, perhaps the positives have already been factored into current prices. Besides, being cast in the limelight for prolonged periods usually carries inverse connotations for the near future.
Drawing lessons from the past, Paul Macrae Montgomery observed in the 1970s that when Time magazine had a cover story about equity markets or finance-related matters, one could assume that the opposite would happen in the near horizon.
Simply put, bullish stories tended to yield negative outcomes and pessimistic ones usually had the last laugh. This could be worrying news for investors who recently hopped onto the golden bandwagon in hope of richer times ahead.
At present, most investors either invest directly in the gold bullion, or via Exchange Traded Funds (ETFs) that track the price of gold bullion.
One such locally-listed ETF is SPDR® Gold Shares (Gold Shares) which tracks the underlying index of spot gold prices - an unquestionably fair benchmark in relation to the value of the precious metal. Notably, this ETF was the first commodity-based ETF listed on the Singapore Exchange (SGX) back in 2006 and has been flirting with new all-time highs of late.
Benefits
The benefits of investing in Gold Shares as opposed to physical gold include greater liquidity and lower costs when compared to that relating to the purchase, storage and insurance of physical gold. In addition, since ETFs are traded like equity shares, the restriction of early exit does not apply.
Therefore, gold ETFs will work for individuals if their investment purpose is primed at taking benefit of short-term volatility in gold prices.
All that said, cautionary notes have been cast in the markets as technical analysts have started painting a gloomy picture for Gold Shares from a trading standpoint.
Some say that the near term performance is crucial for the ETF. If the prices do not fall below US$138.00, the uptrend for the gold ETF remains intact.
Conversely, analysts warn that should prices fall sharply to US$129.77 in the days ahead, the ETF's price may head towards US$120 or lower. In that scenario, many latecomers to the popular ETF may suffer major losses.
More worryingly, investors who bought into its less-liquid counterpart - physical gold - might be faced with a depreciative asset that is hard to dispose of quickly to cap downside losses in the event gold prices plummet.
All that said, perhaps a pertinent point that could sway the direction of the argument at this juncture is one's investment horizon. An investor who turns 20 this year as opposed to another that is about to celebrate his 70th birthday have grossly different investment horizons.
For example, gold prices may lose its hype in the next year or so but may see yet another incredible rally after.
After all, China and India's demand for gold has been nothing short of astounding. Both countries share traditional uses for gold, especially in the form of jewellery for purposes such as dowry and other auspicious affairs.
With increasing affluence and wealth among its people, the demand for gold is likely to pick up over the years as those who can afford to buy gold jewellery will buy more while those who never had the budget for it before, might do so now.
To illustrate the extent of recent growth, demand in China almost trebled to 580 tonnes in 2010 from 206 tonnes in 2001, according to data from the World Gold Council.
Should such growth persist, perhaps current gold and correspondingly related ETF prices may eventually be justified or even appreciate further in the years to come.
A younger investor is thus more likely to be around when that happens as opposed to someone who is already in his golden years. So the moral of the story is this: investors who possess shorter investment horizons should be wary against investing in gold and its related asset classes in the near term, while those with longer term horizons - such as a 20-year-old - could perhaps park their money there and stand a better chance that it might amass into a healthy retirement fund some time in the future.
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
