Gold recovers but growth 'limited'
Gold has recovered from its sudden price drop but is unlikely to increase in value much further, one expert says.
Tuesday, May 7th 2013, 6:00AM
by Susan Edmunds
The precious metal had its biggest drop since 1983 in the middle of April, dropping 9% overnight to US$1361.10 an ounce, the lowest price since February 2011.
It has since recovered about half of that drop.
Paul Brownsey, of Pathfinder, which has a commodity fund with just under 1% invested in gold, said gold had been a bear market since September 2011.
Gold is now 23% cheaper than it was at its peak two years ago. “On the face of that, it’s unlikely to rally back significantly.”
He said for gold to start performing well again, there needed to be significant fears about inflation or systemic risks in the market. He said inflation would be a concern at some point but not in the near future, and systemic turbulence had been pushed further down the track by central banks’ policies.
Fisher Funds said at its latest briefing to investors that it did not favour investing in precious metal because it was more volatile than inflation itself. “It is more a fear barometer than an inflation barometer.”
Brownsey agreed gold could be volatile but in some situations, for certain purposes, it could perform well.
He said when investments such as government bonds were falling in value, gold was usually rising. “It’s really useful for short periods.”
Over a long period, it was not such a good option, he said. Gold prices are now well below where they were in the 1970s when adjusted for inflation.
In the late-1970s, gold reached almost US$2000 per ounce, in real terms, at least US$500 more than gold is trading for at present.
“If you bought it and sat on it, it would have returned less than zero over the past 20 years,” Brownsey said.
He said Pathfinder had no intention of increasing its exposure to gold.
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