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07-09-2011, 05:11 AM
Business Times - 07 Sep 2011
Gold rush still far from over, say analysts
Even as prices hit new highs, outlook remains bright for the precious metal
By MINDY TAN
(SINGAPORE) Even as gold for immediate delivery hit an all time high of US$1,921.15 an ounce yesterday, posting a 1.1 per cent gain, analysts say the gold rush is far from over.
'Despite gold trading at all-time highs currently, our decision to increase our target for gold from US$1,850 to US$2,200 over the next 12 months reflects our belief that more turbulent times await the global markets,' says Kelvin Tay, Singapore-based chief investment strategist at UBS Wealth Management Research.
Spot gold later fell on speculation of the Swiss central bank's move to impose a ceiling on the franc's exchange rate.
It slid to US$1,895 at around 8pm, according to data from Bloomberg.
Prices rose 12 per cent in August, the largest monthly increase since a 12.8 per cent gain in November 2009.
While other analysts are slightly more conservative, pegging their 12 month target to US$2000, they too are of the consensus that gold's outlook remains bright.
'On a long term basis, we think that gold still has the potential to rise further,' says Ong Yi Ling, investment analyst with Phillip Futures.
With low interest rates, a weak US dollar, central banks contemplating another round of quantitative easing, and countries still struggling to stabilise their sovereign debt levels, she notes that this environment could fuel further increase in gold prices as investors seek a safe haven.
With the onset of the wedding season in India, the largest consumer of gold, analysts are divided on whether this will drive prices up further.
'The Chinese and Indians have always been very price sensitive,' says Andrew Gardner, head of commodities research in Asia Pacific, at MF Global Securities (Australia).
'We've seen that in other commodities like copper; often they'll increase their stock levels quite significantly when prices are low and rising, and after reaching a high point, will step out of the market for the price to drop again before they start buying.'
However, he notes that India has bucked the trend recently. 'Whenever gold prices go up, the supply of scrap gold goes up as people trade in their jewellery and melt it down in exchange for cash. We're not seeing quite the same quantum this time, presumably because of financial market factors. People are obviously worried, and this may be why they are holding onto and still buying physical gold even the price rises.'
Mr Tay of UBS adds: 'Traditionally, jewellery demand has been the biggest factor in the gold market . . . We believe the jewellery demand will remain strong, despite high and rising gold prices.'
He lists strong economic growth in emerging markets leading to higher personal incomes which in turn should boost demand for gold jewellery, the appreciation of Asian currencies which will lead to an increase in purchasing power in US dollar terms, and pent-up demand as factors that could affect the market.
He says: 'Furthermore, once potential buyers of gold jewellery realise that the rise in prices is unlikely to reverse, their reservations about gold should diminish.'
Phillip Futures' Ms Ong, however, notes that increasingly, it is the investment demand for gold that drives prices higher than jewellery demand.
Mr Gardner at MF Global agrees, noting that with the increasing ease of opening retail accounts to invest in gold in China and India, a new source of money is opening up.
'Investors remain hopeful that the Federal Reserve chairman Ben Bernanke will announce further stimulus plans. All eyes are on the FOMC meeting,' says Phillip Futures' Ms Ong. 'If QE3 is announced, gold could continue its upward ascent.'
'I see a lot of value in gold equities at the moment, which is experiencing the biggest underperformance relative to gold prices,' adds MF Global's Mr Gardner.
'Gold mining companies are currently not seeing the benefits of high share prices in relation to gold prices. Looking at good quality gold mining companies is probably the best way to play the gold price right now.'
Gold rush still far from over, say analysts
Even as prices hit new highs, outlook remains bright for the precious metal
By MINDY TAN
(SINGAPORE) Even as gold for immediate delivery hit an all time high of US$1,921.15 an ounce yesterday, posting a 1.1 per cent gain, analysts say the gold rush is far from over.
'Despite gold trading at all-time highs currently, our decision to increase our target for gold from US$1,850 to US$2,200 over the next 12 months reflects our belief that more turbulent times await the global markets,' says Kelvin Tay, Singapore-based chief investment strategist at UBS Wealth Management Research.
Spot gold later fell on speculation of the Swiss central bank's move to impose a ceiling on the franc's exchange rate.
It slid to US$1,895 at around 8pm, according to data from Bloomberg.
Prices rose 12 per cent in August, the largest monthly increase since a 12.8 per cent gain in November 2009.
While other analysts are slightly more conservative, pegging their 12 month target to US$2000, they too are of the consensus that gold's outlook remains bright.
'On a long term basis, we think that gold still has the potential to rise further,' says Ong Yi Ling, investment analyst with Phillip Futures.
With low interest rates, a weak US dollar, central banks contemplating another round of quantitative easing, and countries still struggling to stabilise their sovereign debt levels, she notes that this environment could fuel further increase in gold prices as investors seek a safe haven.
With the onset of the wedding season in India, the largest consumer of gold, analysts are divided on whether this will drive prices up further.
'The Chinese and Indians have always been very price sensitive,' says Andrew Gardner, head of commodities research in Asia Pacific, at MF Global Securities (Australia).
'We've seen that in other commodities like copper; often they'll increase their stock levels quite significantly when prices are low and rising, and after reaching a high point, will step out of the market for the price to drop again before they start buying.'
However, he notes that India has bucked the trend recently. 'Whenever gold prices go up, the supply of scrap gold goes up as people trade in their jewellery and melt it down in exchange for cash. We're not seeing quite the same quantum this time, presumably because of financial market factors. People are obviously worried, and this may be why they are holding onto and still buying physical gold even the price rises.'
Mr Tay of UBS adds: 'Traditionally, jewellery demand has been the biggest factor in the gold market . . . We believe the jewellery demand will remain strong, despite high and rising gold prices.'
He lists strong economic growth in emerging markets leading to higher personal incomes which in turn should boost demand for gold jewellery, the appreciation of Asian currencies which will lead to an increase in purchasing power in US dollar terms, and pent-up demand as factors that could affect the market.
He says: 'Furthermore, once potential buyers of gold jewellery realise that the rise in prices is unlikely to reverse, their reservations about gold should diminish.'
Phillip Futures' Ms Ong, however, notes that increasingly, it is the investment demand for gold that drives prices higher than jewellery demand.
Mr Gardner at MF Global agrees, noting that with the increasing ease of opening retail accounts to invest in gold in China and India, a new source of money is opening up.
'Investors remain hopeful that the Federal Reserve chairman Ben Bernanke will announce further stimulus plans. All eyes are on the FOMC meeting,' says Phillip Futures' Ms Ong. 'If QE3 is announced, gold could continue its upward ascent.'
'I see a lot of value in gold equities at the moment, which is experiencing the biggest underperformance relative to gold prices,' adds MF Global's Mr Gardner.
'Gold mining companies are currently not seeing the benefits of high share prices in relation to gold prices. Looking at good quality gold mining companies is probably the best way to play the gold price right now.'
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