Ready... steady... gold

In my article in January this year, I wrote about the perfect setting for gold to advance. In fact I called the scenario the perfect storm and what a storm it has been ever since, this propelling gold to yet another high of 1,577.57 US$ per ounce (intra day), earlier this month.

What is really still happening? Why this rise? Rumours abounded that the recession can be counted as being over and we can take a breather, or am I mistaken? Mistaken I must be as there is no let up of bad news these days, especially in the financial sector. Has the uncertainty within the European debt crises cleared? Certainly not. Italy’s credit rating outlook has been cut by S & P, Spain’s elections were dominated by a backlash over austerity measures with unemployment over 40 per cent (for under 25’s). Greece, Ireland and Portugal have never been out of the debt limelight.

Where is the euro going? And the US dollar? It is rising now on the back of the euro crises but with the World Bank warning the US that it cannot allow its debt to go to further excesses otherwise its AAA credit rating could be in danger. What? Even America, that Samson of western economic resilience? Yes even America. No wonder then, investors are looking to diversify out of currencies into that shining example that has stood the test of time – gold.

Some analysts are talking of a gold price bubble ready to explode. From the chart, I see no sign of exaggerated surges over the past three years that would be associated with a bubble/blowout. What I see is an orderly very steady trend with good corrections along the way. Corrections there must be and these are healthy base building fundamentals which will help the price of gold even reach $1,700 this year and $2,000 next year. Who knows? Only God does.

With the recent unrest gripping the oil exporting countries of the Middle East and North Africa, and spreading like a democratic epidemic throughout the region, erosion of Central Bank credibility, now even hitting the IMF involving the chief himself, with central bonds performing a U turn by becoming net buyers of gold – UK sold most of its gold reserves for about US$350 per ounce, viva Gordon Brown – with China’s gold import seen exceeding 400 tons in 2011, with India also on the same route, gold, in my opinion, remains an excellent hedge against risks – known, hidden or unknown – as well as inflation.

There are various ways of how to invest in gold or gold valued instruments. One can go into shares, mainly Canadian, South African or Australian, but shares are much more volatile than the metal itself and may not always inflict the real value of gold itself. This method of investment offers the trader a much wider stream of opportunities. Then there are ETF’s – Exchange Traded Funds. These are investment vehicles which must invest directly into gold. However one must exercise caution when choosing such funds and look out to ensure that 100 per cent of the monies are actually invested into the metal and not traded on the metals exchange. As with all funds, there are charges – as the fund managers have to live.

For me however, there is nothing safer than buying the bullion itself and holding this at your bank. Holding charges do exist here, but the market in gold is very liquid and one can dig in or jump out at the current market price, virtually at will.

This article is the objective and independent opinion of the author. The information contained in the article is based on public information. Curmi and Partners Ltd. is a member of the Malta Stock Exchange, and is licensed by the MFSA to conduct investment services business.

www.curmiandpartners.com

Mr Curmi is a director at Curmi and Partners Ltd.