Price of gold expected to keep rising but at slower pace

AFTER an eventful 2010 where gold prices rose by over $300 (€225) an ounce, the prospect for the coming year suggests the markets will see more of the same but possibly at a slower rate.

Having closed at $1,085 on the last trading day of 2009, the precious metal enjoyed one of its most remarkable years in decades as it rose to $1,421 on November 9.

In a year where the future of the euro was openly debated, the US Federal Reserve printed an extra $600 billion in quantitative easing and as worries about a full-blown depression persisted, investors chose to switch to tangible assets on worries that the value of paper money would significantly decrease.

“Gold is a safe haven,” says Mark O’Byrne, executive director of Dublin-based Gold Core Investments.

“Gold was not generally on most investors’ radar during the 1980s and 1990s mainly because property and stockmarkets were doing so well in those times. As a result, people were not familiar with it as a security,” he says.

With the puncturing of the property bubble and the upheavals on the world’s stock markets, however, the glittering substance is once again taking a central position. “The price has been affected by the global economic climate that has emerged over the past two years,” he says.

“We would always advise investors to look at gold as part of their investment strategy, up to a maximum of 15% to 20% of their portfolio.”

The old Wall Street mantra — ‘Put 10% of your money in gold and hope it doesn’t work’ is a well-placed maxim in today’s extreme environment, he believes.

“Gold is finite, a safe haven asset. It’s the reserve currency of central banks and, as proven throughout history, gold goes up when property and stocks go down.”

O’Byrne is bullish about gold’s prospects over the medium term.

“We tend to focus more on a medium to long term view, five to 10 years out, and we believe gold will eventually reach an inflation adjusted high of $2,400.

“Gold is still nominally below the price it was in 1980 and is undervalued from a historical perspective and that is why we, and most analysts, believe it has a very strong chance of reaching this figure.”

Jeff Nichols, senior economic advisor at Rosland Capital, predicts gold to hit $1500 during the early months of 2011.

“Recent prices are up 30% from the end of 2009. We expect gold will easily reach $2,000 an ounce in the next year or two.”