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28-06-2011, 06:20 AM
Business Times - 28 Jun 2011
COMMODITIES
Gold prices seen holding steady
By MICHELLE TAN
GLOBAL investor and central bank demand will support gold prices, underpinned by Asian demand for jewellery in the short to medium term, says Bank Sarasin.
Viewed as an effective hedge against an uncertain economic climate, gold has seen its value appreciate by leaps and bounds in recent years.
Faltering global economic growth has also lent a hand to gold's stupendous climb, as rate hikes seem increasingly unlikely in the near term, weighing on real yields.
'We think that investors should not only focus on nominal interest rates, but also and especially on the level of real interest rates. As a matter of fact, nominal interest rates do not take into account inflation pressures, which are tilted on the upside and will most likely keep real interest rates very low. We therefore continue to recommend exposure to physical gold, which does well in a negative real interest rate environment,' said Jerome Berset of Swiss Precious Metals, in relation to suppressed real yields.
Coupled with global inflationary woes, the issue of stagflation has also arisen, strengthening the position of gold as a prime investment choice.
Moreover, heightened demand for jewellery in countries such as China and India is expected to put a medium-term floor under gold prices.
Looking at statistics, China has seen jewellery sales jump 21 per cent year-on- year and the removal of restrictions on investing in physically backed gold exchange traded funds (ETFs) has also acted as a positive price catalyst for the metal.
Bank Sarasin added that such ETFs are 'very popular' due to high domestic inflation and limited domestic investment opportunities in nations such as China.
Jewellery demand in India also grew a healthy 12 per cent year-on-year despite a 25 per cent spike in the average price of the yellow metal.
Collectively, China and India constitute 63 per cent of the world's demand for gold jewellery and are key market drivers for the precious metal.
'We expect investment demand to remain robust in the coming months, supported by jewellery demand in emerging markets, particularly China and India,' said Eliane Tanner, commodity strategist at Bank Sarasin.
However, Ms Tanner warned that investors should keep a 'watchful eye' on interest rates meanwhile as a sustained rise will see investors 'unwind their gold position' in favour of higher-yielding options and this could take place as early as mid-2012.
All that said, Bank Sarasin still expects gold prices to trend northwards as a result of strong demand and growing jewellery consumption in emerging nations.
To highlight, the Swiss private bank forecasts gold to trade at US$1,575 by the end of the third quarter of 2011 and US$1,650 by the end of the second quarter of 2012.
COMMODITIES
Gold prices seen holding steady
By MICHELLE TAN
GLOBAL investor and central bank demand will support gold prices, underpinned by Asian demand for jewellery in the short to medium term, says Bank Sarasin.
Viewed as an effective hedge against an uncertain economic climate, gold has seen its value appreciate by leaps and bounds in recent years.
Faltering global economic growth has also lent a hand to gold's stupendous climb, as rate hikes seem increasingly unlikely in the near term, weighing on real yields.
'We think that investors should not only focus on nominal interest rates, but also and especially on the level of real interest rates. As a matter of fact, nominal interest rates do not take into account inflation pressures, which are tilted on the upside and will most likely keep real interest rates very low. We therefore continue to recommend exposure to physical gold, which does well in a negative real interest rate environment,' said Jerome Berset of Swiss Precious Metals, in relation to suppressed real yields.
Coupled with global inflationary woes, the issue of stagflation has also arisen, strengthening the position of gold as a prime investment choice.
Moreover, heightened demand for jewellery in countries such as China and India is expected to put a medium-term floor under gold prices.
Looking at statistics, China has seen jewellery sales jump 21 per cent year-on- year and the removal of restrictions on investing in physically backed gold exchange traded funds (ETFs) has also acted as a positive price catalyst for the metal.
Bank Sarasin added that such ETFs are 'very popular' due to high domestic inflation and limited domestic investment opportunities in nations such as China.
Jewellery demand in India also grew a healthy 12 per cent year-on-year despite a 25 per cent spike in the average price of the yellow metal.
Collectively, China and India constitute 63 per cent of the world's demand for gold jewellery and are key market drivers for the precious metal.
'We expect investment demand to remain robust in the coming months, supported by jewellery demand in emerging markets, particularly China and India,' said Eliane Tanner, commodity strategist at Bank Sarasin.
However, Ms Tanner warned that investors should keep a 'watchful eye' on interest rates meanwhile as a sustained rise will see investors 'unwind their gold position' in favour of higher-yielding options and this could take place as early as mid-2012.
All that said, Bank Sarasin still expects gold prices to trend northwards as a result of strong demand and growing jewellery consumption in emerging nations.
To highlight, the Swiss private bank forecasts gold to trade at US$1,575 by the end of the third quarter of 2011 and US$1,650 by the end of the second quarter of 2012.
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