Gold price rises at last but investor focus must be long term

28th August 2013


A bounce in the price of gold following its July low has seen bullion traders go bullish on the precious metal but is it really time to jump in or extend your exposure asks Philip Scott?

Last week the price of both silver and gold rose despite an increase in the value of the US dollar, a factor which typically takes the shine off the yellow metal.

Since early July, gold has risen by 14 per cent and is now swapping hands for around the $1,400 per ounce mark. The continued anxiety over the tapering back of the US’s so-called quantitative easing programme, which has propped up markets since the financial crisis, has shaken investors over recent months but it seems has failed to bruise the appeal of bullion say experts.

Head of research and investment strategy at ETF Securities, Nicholas Brooks says: “The fact that both gold and silver prices ended the week higher indicates the start of Fed tapering may have already been largely been priced in to precious metals prices.”

But a short-term gain should not be cause for too much celebration as gold and gold investors have suffered a rough period of late where after a decade long bull run its price slumped when the traditional drivers of demand, such as the robust greenback receded.

For some 93 weeks to the end of June, gold suffered its sharpest downturn in two decades, losing in the process a massive 37 per cent of its value since reaching an all-time high of $1,927 in September 2011.

While gold remains a historical hedge against the dollar, it is also seen and used as a safe haven investment during periods of political turmoil.

Julian Jessop, head of commodities research at consultancy Capital Economics argues that the recent bounce reflects a revival of this safe haven demand due to geopolitical risks, such as the unrest in Syria. He says: “Even if this crisis eases soon, gold could gain further support from uncertainty generated by the upcoming skirmishes over the US debt ceiling and by the elections in Germany.”

Adrian Ash, head of research at gold and silver exchange BullionVault is adamant that the reasons for investing in gold remain as valid now as they did at the peak of its popularity. Although he admits that it is unclear whether the recent jump marks a long-term upward trend, but he says the recent bounce is in no way unprecedented.

“Since April 1968, there have been 15 rolling three-month periods where gold in sterling has lost 24 per cent or more, and after each of these three-month periods, gold prices rose again over the next three months, resulting in an average 20.7 per cent increase for UK investors,” he adds.

Adrian Lowcock, senior investment manager at fund broker Hargreaves Lansdown however, says the recent volatility has caused claims of both a bear and now a bull market this year, which he believes is not particularly constructive and only highlights the need for investors to focus on the long term.

He says: “Gold has a place in investor portfolios. It provides an insurance policy and will protect investors over the long term effects of quantitative easing. But investors should be wary of short term performance as the gold price can be sensitive to political decisions.”

Lowcock recommends that investors looking for exposure to gold mining stocks look to the BlackRock Gold & General fund, and for those looking for something more defensive, he cites the Troy Trojan fund. For a passive play, investor could opt for a gold ETF, which just tracks the price of gold.

Jessop forecasts that the gold price will edge higher in-line with the likely growth in global incomes and expects the metal to reach $1,440 by the end of 2014 and rise to $1,530 per ounce by the close of 2015.

Read Mindful Money’s interview with BlackRock Gold & General fund manager Evy Hambro here.

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