GOLD, which appears to have proven its status as a store of wealth in troubled times, may gain this week as investors continue to seek an alternative to the dollar.
Twelve of 19 traders, investors and analysts surveyed by Bloomberg on Friday said the metal would rise. Five forecast lower prices and two were neutral.
Gold weakened modestly on Friday, falling up to 0,77% to 1132,70/oz , paring a weekly advance, as the dollar strengthened and demand faltered for the metal as an alternative asset.
The dollar rose for the first time in six days against a basket of six major counterparts, after China’s 21st Century Business Herald said banks were reducing property loans, adding to signs authorities were taking action to curb asset price gains.
But the currency was on course for a second weekly decline amid prospects that the Federal Reserve may keep rates near zero to spur the economic recovery. The gold price rallied 24% last year, the ninth straight year of gains, reaching a high of 1226,56/oz on December 3 .
London-based Numis Securities said in a commodities review that over time frames longer than 12 months, gold had consistently demonstrated its premier status as a store of wealth in times of economic crisis and/or monetary devaluation.
Gold was up 31% in dollar terms over the past two years, while in sterling terms it rose 62% to about £700/oz.
“Whilst we recognise the risk of a deflationary ‘scare’ on anticipated quantitative easing- withdrawal programmes, we see little hard evidence governments and central banks will reverse fiscal and monetary policy away from borrowing/spending and inflation,” Numis said.
“Therefore, whilst we see similar short-term downside risks as with the base metals (that is, speculation and vulnerability to a dollar rally), together with the additional risk of a seasonally weak first half of the year, we continue to see gold as the best long-term bull market.”
Rob Spanjaard , member of South African unit trust Rezco Value Trend Fund, said: “We are seeing one of the great rallies in the price of gold.
“The yellow metal price had a rally from 1970 to 1980, rising from 35/oz to more than 700/oz.
“It then did very little for the next 25 years.”
At the beginning of 1955, the gold price was 35/oz and the S&P index was at 35. At the close of this year they were again almost equal, with gold between 1100/oz and 1200/oz and the S&P at about 1100.
“Since 1955 there are three distinct periods of about 17 years of gold outperforming or underperforming. The new gold cycle has just started, according to this methodology.”
Spanjaard said the inherent monetary value of gold, rather than jewellery demand, was driving the price. “There are many investors who believe gold retains its value even as governments resort to printing money to finance their deficits as they are now doing,” he said.
However, Spanjaard warned against constructing laws of finance from such examples.
“At Rezco we lean more to the view that we have the makings of yet another financial bubble,” Spanjaard said.
Nedbank Group’s economic unit said that here in SA, the world’s third-biggest producer, gold production should remain relatively steady in coming months, supported by the gold price, due to expectations of continued dollar weakness and growing global inflation fears.
Numis said reduced global central bank sales, and a shift to net purchases by China, Russia and India had helped support the gold price last year, and the securities group expected the trend to continue “as the creditor nations continue to divest a small portion of their foreign exchange reserves into gold”.
China — also the leading gold- producing nation — was either buying the metal through its government, or it was encouraging its population to do so, either indirectly through negative real interest rates, or directly.
“Chinese buying of gold has escalated over the past year to the point that the country has taken over from India as the number one gold consumer.”
Numis remained cautious on the price in the near term as “we are about to enter the seasonally weak period for physical gold demand”. If there was “a continuation of the dollar rally that began in December ”, the break through 1000/oz could provide a solid floor to any correction, though “we would not be surprised to see panic/stop-loss selling if this level is breached”.
US jobless claims data out late last week rose 2,5%, the most in five weeks, and retail sales slipped 0,3% last month after a 1,8% jump in November.
Mine Life senior analyst Gavin Wendt said Mine Life’s near-term outlook on gold was neutral, with the longstanding factors that had been driving the price higher — such as economic uncertainty and dollar weakness — still in play.
“My overwhelmingly bullish longer-term view, however, remains firmly in place,” he said. With Bloomberg
