Gold back on the rise amid uncertainty

GOLD is back on the rise again and is closing in on the record levels seen in June as more economic uncertainty drives investors back into safe havens.

The metal reached US$1,260 an ounce yesterday and is just a few dollars shy of the US$1,264.90 record high achieved in June thanks to renewed uncertainty about Europe and the United States. Its latest rise began in early August when it was around US$1,200 an ounce before soaring to US$1,232 by the third week of the month, with more added this week.

While gold has been rising, investors have been bailing out of equity markets and the euro as indications of more problems in Europe begin to surface.

The Wall Street Journal reported this week that European stress tests may have understated some banks’ holdings of potentially risky debt. ‘This may provide impetus for a new high (for gold),’ said Phillip Futures investment analyst Ong Yi Ling, who expects prices could reach US$1,300 by the end of the year.

Analysts told The Straits Times that when general sentiment becomes risk averse, investors flock to safe havens like gold, the Japanese yen and the Swiss franc as an alternative to the weaker euro.

Despite some improvement, the US economy is grappling with a 9.6 per cent unemployment rate while economic growth slowed to 1.6 per cent in the second quarter from 3.7 per cent in the first three months of the year. Such grim numbers and concern over the euro zone prompted investors to stock up on yen.

That sent the US dollar to as low as 83.34 yen – the lowest level in 15 years and causing the Nikkei-225 to close 2.18 per cent lower yesterday.

The euro has also fallen to an all-time low against the Swiss franc. ‘A lot of uncertainty is helping gold prices,’ said Standard Chartered economist Alvin Liew, who believes prices can go further.

The US$1,260 an ounce level hit this week already exceeds Stanchart’s forecast that it would reach US$1,250 in the third quarter, added Mr Liew. Stanchart sees prices reaching US$1,400 by the end of the year, with some stabilisation possibly in the first quarter of next year.

Swiss bank UBS sees other concerns underpinning gold, including uncertainty over how monetary policy in the developed world will proceed.

‘Investors fear central banks will increase their quantitative easing programmes,’ said Mr Dominic Schnider, head of commodity research at UBS Wealth Management. He said UBS’ yearly forecasts tip gold to rally to US$1,500 an ounce by the middle of next year.

Source: Straits Times (subscribers only)

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