Gold’s Rise Will Go on Long-Term: Investors
Published: Thursday, 8 Mar 2012 | 1:24 AM ET
By: Catherine Boyle
Staff Writer, CNBC.com
The price of gold, the classic safe haven asset, has slipped down in the past couple of weeks— but some investors think this is just a pause before it continues to rise.
“We’re in a strong bull market that is taking a rest right now,” Charlie Morris, head of absolute return at HSBC Global Asset Management, told CNBC.
Continually low interest rates and high demand are the key drivers of the gold price at the moment, he said.
The price of gold [XAU= 1690.6899 5.93 (+0.35%)] suffered its biggest move downward in three years on February 29, with a 5.4 percent drop. Its last major downward movement was in August 2011.
Morris believes that the negative sentiment from August will take around 18 months to wash out, before gold hits a new high early next year. Around 5.5 percent of his portfolio is held in gold.
The best signal for the gold price, according to Morris, is the Dow/gold ratio — the number of gold ounces it would take to buy a share of the Dow Jones Index [.DJIA 12874.98 37.65 (+0.29%)].
“Is the gold price outperforming equities? That’s been true since 2002 and is true today,” Morris said. “The whole reason gold is brilliant (compared to other commodities) is that it has an above-ground store and all the gold that has been mined in history is still here.”
Other investors caution about the return to volatility in the gold market.
“As you move it from store of value to investment trade, as ETFs dominate flow, volatility becomes more intense,” Peter Toogood, head of investment at Old Broad Street Research, told CNBC.
“The rest is a store of value argument," he said. "I think it becomes primarily a function of investment demand and it means it becomes inherently more volatile.”
“It might make you money, but be prepared for more volatility throughout the process,” he warned.
JPMorgan commodity strategists believe gold’s recent weakness is “fundamentally unfounded.”
“This sharp move lower, the second meaningful correction in gold’s long running bull market in the past six months, has inevitably raised questions about the reasons for the sell-off. It has also raised concerns about whether such a large daily move has any negative implications for the longevity of price uptrend. Simply put, we believe the answer is no,” they wrote in a note.