Gold Prices May Fall Before Rising – Precious Metals Panel

Originate:本站　Date:2012-10-12

(Kitco News) - Gold prices could be vulnerable to selling in the near-term, but the longer-term outlook is bullish for the yellow metal, said metal industry members.

In an era of ultra-loose monetary policy, gold offers something tangible and is a hedge against future inflation, they said.

“The only direction gold is going is up. That doesn’t mean that it won’t have corrections,” said Peter Schiff, chief executive officer and chief global strategist at Euro Pacific Capital.

Gold prices have struggled to take out the $1,800 an ounce level, reaching as high as $1,798.10 this month before retreating. On Thursday, December Comex gold prices settled at $1,770.60.

Peter Hug, director of precious metals division at Kitco Metals, said in the short term, gold could see a correction, especially if the U.S. dollar is stronger versus the euro.

“I’m not in the camp that says gold is going to $1,200. If gold falls to $1,600, I say back up the truck,” Hug said.

Both Hug and Schiff spoke on a panel on the outlook for precious metals at Index Universe’s Inside Commodities conference in Chicago.

People who want to own gold need to ask themselves why they are buying it, Hug said.

Leaving out those who buy gold for numismatic reasons, there are three types of gold buyers. First are those Hug called the “fatalistic” buyers, who believe governments will eventually ban gold ownership or that they may eventually need gold for bartering purposes.

They usually buy gold in small sizes, which is the most expensive way to buy gold.

Second are those who buy gold for portfolio diversification, and third are traders who look to take advantage of fluctuations in the market.

David Mazza, ETF strategist at State Street Global Advisors, said between the third quarter of 2011 and the second quarter of 2012, jewelry and investment purchases of gold made up the bulk of gold demand, at a combined 81%. Central bank purchases were 11% and technology was 10%. State Street Global Advisors manages the SPDR Gold Trust (GLD). Mazza also spoke on the panel.

The central bank purchases are expected to continue, especially by emerging market central banks who are looking to diversify their foreign exchange holdings, Hug and Schiff said.

The type of investor who is looking to use gold as a portfolio diversifier needs to keep a watch on the size of his or her position. Like any investment, portfolios need periodic rebalancing to keep percentages in check. Prudent investing wisdom says to sell when prices rise and buy when prices fall, but not many investors have that discipline.

Hug pointed out when gold prices this summer held around the $1,550s area, in June, 87% of transactions at Kitco were sales and 13% were purchases. As prices rose, that ratio changed. In late September when prices were around $1,760, the ratio was 9:1 buyers.
“That’s the exact opposite of what you should be doing,” he said, if one is seeking portfolio diversification.

Just how much gold should be in a portfolio depends on many aspects: the person’s age, risk tolerance, and other assets, among other factors.

“You can get a hedge versus inflation with many assets; it depends on what you’re holding,” Schiff said.

Those who have mostly cash or bond exposure need to diversify because of inflation and the ultra-low interest rate environment. “People don’t understand the concept of inflation. If you have a bond portfolio, you’re getting nothing. Six or seven years ago if you had a $1 million bond portfolio, you might get $50,000 or $60,000 (in fixed income); you could live on that. Now you get no return,” he said.

The investor who is buying gold because of concerns that gold might be confiscated shouldn’t store their gold at their home or in a local bank, Hug and Schiff said. Instead, those investors should seek storage in another country. Popular places include Hong Kong and Singapore, they said.