- From: The Advertiser
- March 25, 2011
INVESTORS are turning to the 'safe haven' of gold and other precious metals as uncertainty grows in the global economy.
The gold price has hit a record high and silver has more than doubled in the past year as investors look for tangible assets in troubled economic times.
While the Australian economy has been performing well, turmoil on world markets caused by the Libyan and general Middle Eastern turmoil, the associated high oil price and uncertainty about the global effects of the Japanese disasters have pushed precious metal prices to record levels.
Europe's ongoing problems, specifically concerns with the Irish and Portuguese economies, are also pushing gold prices higher.
An April contract for an ounce of gold is now selling for $US1438 per ounce, while silver is $US37.2 per ounce.
This time last year they were $US1088 and $US16.6 respectively - gains of 32.2 and 124 per cent.
Indeed, investors would have been much better off if they had invested solely in gold throughout the past
decade.
The 10-year price chart for gold shows an almost inexorable march upwards, whereas the Australian share market has boomed and dipped wildly, peaking at 6760 in late 2007 before crashing to the low-3000 level during the financial crisis.
It has recovered about half of its losses since, but in 10 years the All Ordinaries index has delivered just 54.8 per cent in capital growth.
Gold has returned 449 per cent in comparison.
Interestingly, gold soared during the pre-GFC mining boom, along with shares, but remained resilient as other sectors of the economy
suffered.
Investors often buy gold in times of economic uncertainty because of its physical nature - it's not an asset that can evaporate into thin air like a stock or other paper investment.
But it's not as simple as a desire to stick an investment under the bed. AMP Capital Investors chief economist Shane Oliver said the gold price often moved in the opposite direction to the
US dollar.
Currencies tend to rise if there is an expectation of interest rates increasing in the future, but the prospects of central banks around the world raising rates have decreased following the recent oil price rises and the unknown impact of the Japanese tsunami and nuclear crisis. This has made gold more attractive.
"Whenever there's uncertainty about the outlook, gold is seen as a safe haven by investors," Dr Oliver said.
Also aiding the increase in the gold price is the fact that gold production appears to have plateaued. World gold production peaked at 2600 tonnes in 2001 and has hovered in a 10 per cent range below that since, according to figures from the US Geological Survey.
While now might seem like a good time to cash in any excess gold you have, opinions are split about whether the price will continue to rise.
The Federal Government's commodities forecaster, the Australian Bureau of Agricultural and Resource Economics and Sciences, believes the latter is more likely.
In its March quarter Commodities Outlook, it says it expects the gold price to fall back to about $US975 an ounce in 2013, then rise gradually to average $US1064 an ounce in 2016.
"In the short term, gold price movements are forecast to be influenced by changes in investment demand.
"After 2013, robust investment and jewellery demand, weaker average scrap sales and flat mine production growth are projected to support the gold price," the bureau says.
Other analysts are expecting the price to break through $US1500 per ounce as inflation and currency fluctuations around the world make other investments more risky.
But jewellery buyers should not despair at the high gold price - only pieces with a relatively high amount of gold in them are heavily affected by the daily gold price movements.
Adelaide Exchange Jewellers proprietor David Manning, whose business trades "hundreds of thousands of dollars" worth of gold every day, said there were plenty of people who bought gold and silver bars as investments.
The gold price did not translate directly into higher prices for jewellery though.
"These days gold chains are sold by weight, they're sold on a daily price, but general things like engagement rings and regular jewellery they have increased in price slightly because of the metal, but the manufacturing cost is a lot more than the metal so it hasn't increased it by that much," he said.
"The heavier the piece is the more likely it is to be influenced by the gold price."
Mr Manning said people wishing to sell jewellery would be paid on the value including the craftsmanship, not just the gold weight.
"Some people only buy jewellery for gold value, we actually buy things for gold value for things which are scrap but will pay a premium for nice pieces," he said.
(SOURCE : http://www.adelaidenow.com.au/business/an-investment-as-good-as-gold/story-e6frede3-1226027687745 )
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