PETALING JAYA: Spot gold prices, which have risen over 17% this year, will continue to show strength for the forseeable future as investors exit currencies and sovereign bonds over monetary and fiscal policies in the United States, the European Union and Japan.
Spot gold settled just a shade below US$1,320 per ounce last Friday and traded at an intraday high of US$1,320.63 yesterday before easing to US$1,317.02 at 5pm.
AIMS Asset Management Sdn Bhd managing director David Crichton-Watt, who expects the US dollar to begin rallying in the next two weeks or so, told StarBiz the greenback’s trade-weighted index showed that it was “very oversold on the daily charts and is close to very oversold on the weeklies”.
He added that this should result in some consolidation in the US dollar/gold price but gold would resume its strength (probably against all currencies) once the recent surge against the greenback was corrected as the underlying economic problems were still growing.
Barclays Capital analysts Sudakshina Unnikrishnan and Kerri Maddock said in an Oct 1 report that gold prices looked set to test new highs until investor fears about the shape of the economic recovery were allayed and interest rates picked up.
Seoul-based futures trader Park Jong Beom of Tong Yang Futures Trading Co told Bloomberg that a correction in gold prices would be short-lived and bullion was likely to head upwards as there was still talk of quantitative easing in the United States.
US Federal Reserve officials, including Federal Reserve Bank of New York president William Dudley, have said in recent days that the economy would need more aid to boost job creation and spending.
The greenback fell versus the euro and yen while two-year US Treasury yields were also lower following Dudley’s comments last Friday.
“Gold is a very negative investment in that it yields nothing and indeed costs money to store safely. The reason investors are committing increasing sums of money to gold is that they are becoming increasingly fearful of fiat currencies and government bonds,” Crichton-Watt said.
He added that major Western governments as well as Japan could not conceivably meet their obligations without very considerable inflation.
Crichton-Watt said “they are all determined to increase these debt levels by deficit spending and keeping interest rates low via quantitative easing”.
He said it was impossible to know how high gold prices would go unless one knew how much governments would spend on their troubled economies.
“However, we’re only 10 years into what is undoubtedly a secular trend and such trends usually last 15 to 20 years and end in a parabolic rise,” he said.
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