Gold has risen more than 30% since the Lehman debacle, hitting a peak yesterday just shy of $1,000. Is the party over? We asked four experts, including our own head of research, Jonathan Miller, what they think.
Leading economist Roger Nightingale said he could see 'no justification' for the recent jump in price of gold, and he questioned why it should outperform equities as an asset.
He said: 'It is a commodity used in jewellery and as a speculative play, but jewellery
demand is not a driver of it (at present), and I don't see why it should be a good performing asset.'
Nightingale said gold had enjoyed a strong run in the past 10 years, during which time it has moved fairly consistently higher from a starting point of less than $300 an ounce. But given that investors are not paid anything in terms of dividends or income to hold it, he said it had probably used up all its potential for now.
Julian Jessop, chief international economist at
Capital Economics, said that while it had benefited from dollar weakness and the safe haven story, that trend would dissipate.
He said: 'If the dollar weakens sharply, we could break through the $1,000 mark and stay there for a while. But ultimately, the safe haven story will favour the dollar.
'So we think it will pull back from here, barring a dollar collapse, and we aren't forecasting that.'
In contrast, veteran fund manager
Mark Harris of Henderson New Star is more bullish. He said he was adding to most of his multi-manager funds' gold exposures, with the short-term expectation that it will creep above $1,000 and further down the line as a defence against inflation.
'We expect it to break through $1,000, and if it gets through that we would add to it, as we are not seeing a lot of downside.'
On the longer-term picture, Harris added: 'We still like it as a hedge against inflation in the next few years, and we could be seeing the reflation trade (boosting prices) already as people step up their exposure in anticipation of future inflation.'
Jonathan Miller, Citywire’s head of research has some gold exposure in his portfolio, but says you should wait for a fall in the price before investing.
'Gold has been trading within a narrow range over the past few months and the break-out towards $1000 seems overdone. If it pulls back towards the early $900 range, that would be a more interesting entry point for investors, as an inflationary scenario will be the real kicker for gold.
'Traditionally, gold has been a great hedge against inflation. That is not currently a threat, but it does remain a concern over the medium term. What I am worried about is the aftermath of quantitative easing and the monetary policies put into place by G20 nations, because the full impact is yet to be understood. So much money has been printed that inflation could come back with a vengeance.
'So I want a bit of exposure to gold, but prefer to do this in a broader context. I am still invested in
JPM Natural Resources, which offers exposure to goldmining shares and a broader natural resources theme.'
