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Gold set to recover luster |
Analysts say recent price drop is only for short-term
July 08, 2010 |
Gold prices may rebound in spite of a sharp drop in the value of the commodity in the last few days, analysts said yesterday.
Gold prices on the New York Mercantile Exchange hit a six-week low on Tuesday, falling below $1,200 an ounce.
Domestic gold prices have hovered around 190,000 won ($155) per 3.75 grams after being quoting at 200,000 won on the last day of June.
The decline in the gold price may reflect investor belief that talk about a double-dip recession in advanced economies could ease inflationary pressure. Gold is normally regarded as an inflation hedge.
However, some analysts believe the drop in the gold price is only short-term.
A report by Shinhan BNP Paribas Asset Management yesterday said that demand for gold is expected to rise in the long-term.
“Global demand for precious metals, which had plummeted after the financial crisis, will start to surge on the back of the rapid economic recovery seen in emerging countries like India and China,” the report stated. “With the global economy entering a recovery phase, demand for precious metals including gold will likely grow.”
It is said that if the U.S. dollar should weaken, then this would increase demand for gold. The price of gold normally rises when the value of the dollar falls. “With countries diversifying their foreign reserves, those with a low portion of gold in their foreign reserves may expand gold holdings,” the report explained.
Angus Murray, chief executive of Castlestone Management, said in a recent interview with the Wall Street Journal that gold bullion is a strong “buy-and-hold” asset. He forecast the price of gold would surpass $1,500 per ounce in the near future and possibly $2,400 later in the decade, citing rising mining costs, strong demand for gold bullion by central banks in emerging markets and the devaluation of paper money.
FnGuide, an online stock provider, said gold funds have outperformed so-called local theme funds, which track wine funds, commodities funds and Samsung funds, during the first half of the year. Gold funds generated the highest returns at 14.27 percent.
Retail investors normally gain exposure to gold through gold funds or gold-related Exchange Traded Funds. The Hyundai HiShares Gold ETF, which tracks the gold price in the London Bullion Market, is the only gold-based ETF listed in Korea.
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