Gold prices may hit US$1,700 end of Q3: analysts

With poor economic recovery in the US and concerns over in the European Union, gold is very likely to make new records and has gained in popularity as a safe haven investment to many investors looking to protect their wealth during uncertain times such as these.

By Stella Lee
Posted: 17 June 2011

SINGAPORE : Gold prices are likely to break previous records, with lacklustre economic recovery in the US and concerns over uncertainty in the European debt markets giving support.

Analysts say the precious metal has gained in popularity as a safe haven investment, pushing up prices.

Besides stocking up on bullion, they say retail investors in Asia are also looking at other gold alternatives such as gold ETFs as part of portfolio diversification.

Gold prices have continued their upward march and analysts say prices are likely to hit US$1,700 an ounce by the end of the third quarter of this year.

Fears over Europe's sovereign debt crisis and the weakening US dollar have driven the gold market upwards.

Ong Yi Ling, investment analyst at Phillips Futures, said: "(Only) with acceleration of economic recovery and consumer confidence will there be a return to more risky assets."

Spot gold traded around US$1,528 an ounce in Asia on Friday. It stood at an all time high of US$1,563.70 in late April.

However, many analysts believe that investors should not put all their eggs into one gold basket.

Sean Mulhearn, global head of commodity sales at ANZ Bank, said: "Our philosophy is that a more balanced approach and a more balanced investment policy is a much smarter way of trying to invest in gold."

Other industry observers even consider gold as the safety net in an investment portfolio.

Albert Cheng, managing director, World Gold Council, said: "It is like an insurance to your portfolio, like life insurance to your life. As an insurance policy, you will only want to use it when you are in a distressed situation.

"In the case of a financial portfolio, when all other asset classes are going south, probably your gold is going up; but in reverse if all your asset classes are going up and your gold remains steady, that is exactly what your insurance policy is for."

Many observers also say that more and more Asian investors are seeking out alternative ways of making money from gold.

These include gold exchange traded funds, or ETFs, which are pegged to the underlying value of gold and traded like stocks, which are better suited to less sophisticated investors.

Analysts say gold ETFs are less risky than gold structured products, and require less sophisticated investment understanding.

Mulhearn said: "We have seen a lot of growth in the global ETFs - that doubled in size in the last 12 months - so we have seen a tremendous amount of money moving into the ETFs."

According to the World Gold Council, China has contributed to the rise in prices of the precious metal, but its total demand has yet to be fully priced into the market.

China's consumer demand for gold in the first quarter of this year alone exceeded 41 per cent of the demand for 2010 and overtook India as the largest investment market for physical bars and coins in 2010.

- CNA/al

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