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Alternative Investments
Tuesday, May 13, 2014 - 12:57
Worth a bit

Gold had a stellar run in recent years – until 2013: that’s when the yellow metal finally succumbed to pressure, and lost almost 30% of its value. Yet again, the first few months of the current year, it rebounded, and investors are now asking, what’s going on, and considering whether gold still has more steam.

Mabyanine Phiri, Trader at ACM Gold, says that the metal was trading at US $1,378.65 an ounce on 17th March 2014), and is likely to run its course between $1 080 and $1 400, with more inclination on the bearish side.
“If we analyse the price charts of gold, it is clear that the yellow metal is going through a correction, which might end at around $1 100. Hence, the best way forward for investors is to trade the daily and weekly volatility of gold in order to make short-term profits. For those who are more interested in a long term physical investment, we would suggest waiting for incoming strong support levels at around the $ 1050-$1 180 range.
“There are a number of technical and fundamental reasons for this analysis. The monetary policies of the US Federal Reserve, along with the performance of the US economy, are major determinants when trying to figure out trends in the movement of gold. Currently, the dollar is going through the ‘taper’, which helps to boost the value of the currency, and so any commodity denominated in dollars will take a toll.”
This follows Bernanke’s Quantitative Easing (QE) programmes, which were initiated to give the US economy a much needed boost. “When policy makers felt that the US economy was back on track they decided to start the tapering. This means that future economic data such as US employment figures will be crucial in determining whether the world’s biggest economy is really back on its feet. If that is the case, we will increasingly see investors turning to the dollar for investment purposes, which in turn will drive down the demand and price of gold,” explains Phiri.
Adding to this, is the physical demand mostly from emerging powerhouses such as China and India. The former’s demand for physical gold is critical and obviously has a strong impact on its price; trading often helps support the metal and give it an intrinsic value that cannot be found in most financial instruments.
“We predict increasing demand for physical gold this year, albeit only to a certain extent, which should help to stabilise its price. Even though we believe gold has been over-valued due to its safe haven nature, we would not advise against investing.”
He points out that, while the dollar and other currencies are not backed by anything tangible, gold has an intrinsic value that will ensure it is never worthless. “In addition to its intrinsic value, gold is able to provide investors with a strong hedge against currency depreciation; and this is why it is always a good idea to have some percentage of a portfolio backed with gold.”
 

Copyright © Insurance Times and Investments® Vol:27.5 1st May, 2014
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