Gold still a ‘safe haven’: analyst
The latest report from Resource Capital Research confirms that gold will continue to perform as a ‘safe haven investment’ relative to most asset classed, thriving on bad news, US Dollar weakness and inflation fears.
The firm’s Equity Research Report said that gold is currently caught in a battle between US dollar weakness and equity market recovery.
RCR believes the gold market is being driven by ‘safe haven’ investment being channelled through Exchange Traded Funds (ETF’s) which surged in the March 2009 quarter (up by US$15 billion to US$49 billion in value).
On the supply side recycled gold scrap flooded onto the market, while on the demand side jewellery and industrial demand dropped dramatically. ETF’s stepped in and took up the slack with record fund inflows, boosting equivalent gold holdings by 458 tonnes to 1,648 tonnes. For the first time, ETF demand exceeded jewellery and industrial demand, the traditional stalwarts of demand.
“In the next six months we see gold tacking in a band between US$900 and US$1,000, with probably a greater risk that further equity market recovery could push it below US$900, relative to US$ weakness which could push it over US$1,000,” said RCR senior gold analyst Dr Tony Parry.
“Beyond that time period, re-emergence of inflation is the monster under bed which could crawl out and become the dominant driving force in gold markets, and which could see the price above US$1,000/oz in 2010.”
Gold shares have been the place to be in the last six months, according to RCR’s research. Gold share indices have recovered much of the ground since hitting lows in the September 2008 quarter, and have strongly outperformed overall sharemarket indices. Money is flowing even into the junior end of gold share markets, with many exploration and development gold companies undertaking equity raisings.
In the past six months the Australian Gold Index is up 38 per cent, Canadian up 26 per cent and South African up 29 per cent. The South African and Canadian indices are now slightly above the levels 12 months ago (pre global financial crisis), the Australian is 13 per cent below 12 month levels.
In comparison the Morgan Stanley World Index (MSWI) is still 37 per cent below its May 2008 level.
In the last three months, however, gold shares have underperformed with fairly flat performance (as gold dipped in April). Equity markets have finally produced their first serious 2009 rally (MSWI up 28 per cent).
To access RCR’s gold reports visit: www.rcresearch.com.au/reports