Q I refer to an article you wrote last April on the opportunities in buying gold. Regrettably, I did not buy gold then as I thought the price may drop from the high point then. How has the price moved since your positive comments in April and do you think there is still the chance of further increases over the next six months?
A At time of writing, the price of gold is around $493 per ounce. Since I wrote the article in April, the price has continued to climb, as anticipated, from $432 to $493, or 14 per cent, over only seven months.
Present levels show that the price is now at the highest level in 18 years, as an industry report showed investors are seeking alternatives to US and European currencies, stocks and bonds. What is even more interesting is that the US dollar is around a two-year high against the euro.
Gold has therefore rallied, even though the dollar is so strong. Demand for gold coins, bars and bullion-backed shares rose 56 per cent in the third quarter of 2005, the producer-funded World Gold Council said in mid-November.
Gold sold in dollars has rallied 11 per cent this year, heading for a fifth straight annual gain, as concern about quickening inflation grew and jewellery purchases increased. Investors and jewellers bought $12.5 billion worth in gold, or 838 metric tons in the third quarter of 2005, up 7.6 per cent from a year earlier, the London-based World Gold Council said.
Jewellery demand accounts for 73 per cent of gold consumption.
Gold's rally this year has exceeded the two per cent gain in the Standard & Poor's 500 Index and US Treasuries have returned only 1.7 per cent, heading for the worst annual performance since 1999, according to Merrill Lynch & Co. data.
Investment-grade corporate bonds have gained only 0.9 per cent this year, including reinvested interest payments. They are also poised for the worst year since 1999.
Because the price has risen so sharply, some investors may sell for a profit when the metal reaches the magical $500 an ounce as gold last climbed above $500 an ounce way back in December 1987.
The last point I wish to make is that gold is perceived as a safe haven at times of economic uncertainty and, of course, unsettled times generally. Potential threats of terrorism and, even worse, war are signs to invest in gold.
Investors should therefore consider gold as part of a balanced portfolio. Since the price can fluctuate quite extremely, it is good to invest through a fund that invests in gold bullion directly and that allows entry and exit into the fund on a daily basis. (Source: Bloomberg)
Mark Hollingsworth is the director of Hollingsworth International Financial Services - licensed by the MFSA to provide investment services under the Investment Services Act 1994 (IS/32457). Address any financial questions to: Mark Hollingsworth, c/o The Sunday Times, PO Box 328, Valletta CMR 01. Alternatively, he can be contacted on 2131-6298/9984-2614 (office hours) or e-mail mh@hollingsworth-int.com.
Past performance is no guide to the future and, except where amounts are guaranteed, the price of your investments (and the currency in which it is denominated) may fall as well as rise. Your personal tax situation will depend on residence. Always consult a professional adviser. This article does not intend to give investment advice and its contents should not be construed as such. Readers are encouraged to seek professional advice on their personal financial situation.