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The gold price had gone a wild ride over the past six months – peaking at over $US1030 an ounce on March 17. Prices have since retracted by more than $US100, showing some price sensitivity to economic conditions.
InvestorTV asked the experts whether the yellow metal is really a safe investment choice in today’s environment, and whether current prices for the commodity are overdone.
Cathy Moises is a senior resources analyst at Tolhurst. She outlined some of the factors that affect the gold price.
“Historically, it’s been a hedge against times of economic uncertainty which is certainly happening at the moment,” says Ms Moises. “It’s tended to track the oil price, so the oil price has obviously been running very strongly. And also it’s tended to perform inversely with the US dollar.
“Then on the more supply-demand side, you haven’t had a massive increase in production over the last few years to meet pent-up investor demand,” Ms Moises says. “And I guess investor demand has been increasing, particularly as the gold price has improved, and they’re seeing the returns in that market.”
Nigel Moffatt is manager and treasurer of the Perth Mint, which refines over 95 per cent of Australia’s gold, and facilitates investment in bullion bars and coins. Mr Moffatt says that recent demand for gold has been overwhelming.
“Our demand runs pretty much in line with the gold price itself,” he says. “So we basically have been absolutely overloaded with people ringing us constantly, all day every day.
“There is a very broad spectrum of clients that we have at this stage,” Mr Moffatt says. “But looking at those who have increased in recent times – it’s probably the average person in the street investing somewhere between $10,000 to $100,000.”
But despite the growing demand from investors, Nigel Moffatt says that the surging prices have had an adverse affect on the world’s largest gold market - India.
“India has an appetite for somewhere between 800 and 1000 tonnes of gold per year,” Mr Moffatt says. “The Indian market is strongly predicated on price, and Indian demand for physical gold basically fizzled out at about $US860.
“What’s driven it from there? Well clearly it’s actually been speculative buying by investors who are actually buying because they want exposure to gold, rather than the underlying physical demand.”
Cathy Moises believes that this investor demand could continue to sustain the gold price at the current high level for some time to come, although perhaps not at the levels seen in mid-March.
“I would be a little bit concerned with anything very close to the $1000 mark,” Ms Moises says. “I think it’s a little bit of a high. And we have a lot of gold out there which could actually come into production; a lot of the marginal deposits which could provide a lot more supply, if the gold prices held up at $1000 plus for any length of time.”
Joseph Kingsley, an investment adviser at Wilson HTM, also believes that prices over $1000 an ounce is optimistic for the metal.
“Probably in the short term it did get a little bit heady, given all the positive news that was going right for gold,” Mr Kingsley says.
“In the meantime what we’ve seen is probably close to the end of interest rates being dropped in the US, in which case you’ll probably start to see a bit more interest coming back to the US dollar.
“And if that’s the case you will see the demand for gold probably weaken off because of the stronger US dollar, and probably weaker foreign currencies.
“So in the short term, I’d probably think that $US1000 was a pretty good ceiling to the price.”
So the big question for investors is: How good an investment is gold at the moment?
Joseph Kingsley says that with current prices as they are, bargain hunters should probably look elsewhere.
“As with everything, you want a balanced portfolio,’ says Mr Kingsley. “But I would be looking closer towards those things that have been oversold in this current environment – rather than something that has already had such a massive leg up such as gold, which has put on 25 per cent in the last four or five months alone.”
Meanwhile Tolhurst’s Cathy Moises says that gold’s natural floor price offers investors a degree of security if they chose to buy into the yellow metal, but that her long-term forecast for the commodity is well below current prices.
“I’d see if off-loading between $US850 and $US950; [that] would be our best bet. And longer term we’re forecasting a long-term gold price at $US700,” says Ms Moises.
“So it’s a matter of the reward upside mightn’t be there but you’re certainly not going to lose all your money investing in it, like some of the other investments you could do in the share market at the moment.”
InvestorTV asked the experts whether the yellow metal is really a safe investment choice in today’s environment, and whether current prices for the commodity are overdone.
Cathy Moises is a senior resources analyst at Tolhurst. She outlined some of the factors that affect the gold price.
“Historically, it’s been a hedge against times of economic uncertainty which is certainly happening at the moment,” says Ms Moises. “It’s tended to track the oil price, so the oil price has obviously been running very strongly. And also it’s tended to perform inversely with the US dollar.
“Then on the more supply-demand side, you haven’t had a massive increase in production over the last few years to meet pent-up investor demand,” Ms Moises says. “And I guess investor demand has been increasing, particularly as the gold price has improved, and they’re seeing the returns in that market.”
Nigel Moffatt is manager and treasurer of the Perth Mint, which refines over 95 per cent of Australia’s gold, and facilitates investment in bullion bars and coins. Mr Moffatt says that recent demand for gold has been overwhelming.
“Our demand runs pretty much in line with the gold price itself,” he says. “So we basically have been absolutely overloaded with people ringing us constantly, all day every day.
“There is a very broad spectrum of clients that we have at this stage,” Mr Moffatt says. “But looking at those who have increased in recent times – it’s probably the average person in the street investing somewhere between $10,000 to $100,000.”
But despite the growing demand from investors, Nigel Moffatt says that the surging prices have had an adverse affect on the world’s largest gold market - India.
“India has an appetite for somewhere between 800 and 1000 tonnes of gold per year,” Mr Moffatt says. “The Indian market is strongly predicated on price, and Indian demand for physical gold basically fizzled out at about $US860.
“What’s driven it from there? Well clearly it’s actually been speculative buying by investors who are actually buying because they want exposure to gold, rather than the underlying physical demand.”
Cathy Moises believes that this investor demand could continue to sustain the gold price at the current high level for some time to come, although perhaps not at the levels seen in mid-March.
“I would be a little bit concerned with anything very close to the $1000 mark,” Ms Moises says. “I think it’s a little bit of a high. And we have a lot of gold out there which could actually come into production; a lot of the marginal deposits which could provide a lot more supply, if the gold prices held up at $1000 plus for any length of time.”
Joseph Kingsley, an investment adviser at Wilson HTM, also believes that prices over $1000 an ounce is optimistic for the metal.
“Probably in the short term it did get a little bit heady, given all the positive news that was going right for gold,” Mr Kingsley says.
“In the meantime what we’ve seen is probably close to the end of interest rates being dropped in the US, in which case you’ll probably start to see a bit more interest coming back to the US dollar.
“And if that’s the case you will see the demand for gold probably weaken off because of the stronger US dollar, and probably weaker foreign currencies.
“So in the short term, I’d probably think that $US1000 was a pretty good ceiling to the price.”
So the big question for investors is: How good an investment is gold at the moment?
Joseph Kingsley says that with current prices as they are, bargain hunters should probably look elsewhere.
“As with everything, you want a balanced portfolio,’ says Mr Kingsley. “But I would be looking closer towards those things that have been oversold in this current environment – rather than something that has already had such a massive leg up such as gold, which has put on 25 per cent in the last four or five months alone.”
Meanwhile Tolhurst’s Cathy Moises says that gold’s natural floor price offers investors a degree of security if they chose to buy into the yellow metal, but that her long-term forecast for the commodity is well below current prices.
“I’d see if off-loading between $US850 and $US950; [that] would be our best bet. And longer term we’re forecasting a long-term gold price at $US700,” says Ms Moises.
“So it’s a matter of the reward upside mightn’t be there but you’re certainly not going to lose all your money investing in it, like some of the other investments you could do in the share market at the moment.”
