Gold still on a feverish pitch

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So overall, the positive fundamentals for gold have not gone away; the dollar remains weak, uncertainty remains in financial markets and most importantly mine production is still falling.
Barrick, the world's largest pure gold mining company, predicts that mine supply could fall by 10-15 percent over the next five years and despite a significant increase in exploration spending, the gold industry has not found more than it has mined since 1995. All the easy gold has been found, which means the industry needs a higher gold price for longer before they have enough of an incentive to begin to significantly invest in bringing on new supply. With gold hitting new highs, a concern for some investors, it is worth pointing out that in real terms, gold is some way below its previous high. The 1980 peak of USD850 per ounce, when adjusted for inflation, is over USD2,000 per ounce.

 

Indians form the largest market for gold jewelry in the world. If you believe - as we do at DSP Blackrock Natural Resources team - that gold price is trending upwards and that it will offer positive returns over the medium term, there are ways you can derive the maximum benefit from this. But first, consider the amount of exposure you have to gold as a proportion of your whole investment portfolio. Include your gold jewelry as well as other assets such as property.

Then, you also need to consider what your appetite for risk is - are you looking to diversify away from financial markets, are you looking for protection from inflation or the value of the US dollar etc; you can then ascertain whether further investment into gold is required.

 

 

 

Owning physical gold has its advantages: It is exchangeable anywhere, it is easily transportable and there is no counter-party risk. But ETFs are more easily tradeable. However, remember that you pay a management fee on an ETF. So if the gold price were to stay flat for example, your ETF would actually decrease in value over time.

Questions are asked in India about why gold and equities are moving up together. Given the different drivers for the gold price, namely fear, currencies, inflation etc, gold can and does move in line with equities in the shorter term. In other words, the direction of the gold price does not depend on movements in equity markets. 

By Evy Hambro

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