Golden fears

Golden fears

While every other investment is heading down, gold can only go up, it seems. Why is everyone buying the yellow metal, and should you jump on the bandwagon?

June 13, 2010 12:17 by Samuel Potter

What is it about gold? It seems a day hasn’t passed these last few weeks without the precious metal posting another high water mark in terms of price.

The cause of this rise is, of course, fear. Investors across the globe, having survived a global recession almost without merit, had just started to regain their confidence when events in Greece made it plain that the crisis was not yet over.

Coupled with instability in the Far East, this news has spooked investors who are retreating into established safe havens – for most, that means gold. And this is on top of a larger trend towards safer investments – in India, for instance, demand for gold rose sevenfold in the first quarter of the year, according to the National. And fears over the global recovery are expected to continue to fuel the precious metal’s price rise in the near future.

“With the global economic recovery still burdened by high and rising debt levels in western economies, as well as the renewed threat of recession driving down the US dollar and equities, the outlook for gold as a liquid, reliable asset class and as a store of wealth remains highly favourable,” said Aram Shishmanian, the chief executive of the World Gold Council.

The result has been an unprecedented price rise, with gold posting record highs. And according to the Financial Times, it’s also led to an interesting side effect in the banking sector – banks and security companies are rushing to build new vaults to store gold bars and coins worth tens of billions, says the paper, as the increased market activity has exposed a shortage of storage space.

So, how much further can gold go? Should you be looking to invest yourself? Maybe not, according to some experts. While no one is certain where the price will peak, it’s the instability which has some analysts worried.

“As attractive as the story is for gold, there is no guarantee of safety,” John Person, president of Nationalfutures.com, is quoted as saying by Marketwatch.com “Prices can and do fluctuate wildly.”

The alternative option, according to Gulf News, could be silver. As the price for gold continues its climb, the paper quotes experts who say that silver could be a better buy.

“Gold outperformed silver by 46 per cent over the three years to May 31 2010 and silver, given the long-term correlation between the two metals, is due a catch-up,” Moonraker Fund Management told the paper.

“Silver has lots of practical applications and is widely used for example in plasma screens, mobile phones and coins. I am more bullish on silver than gold in that when it moves it shifts very quickly and it is due a catch-up with gold,” said Jeremy Charlesworth, manager of the Moonraker Commodities fund, based in London.