Gold Loses Some Lustre, But Still A Solid Investment
Gold can help protect against market volatility despite the global economic outlook still looking far from settled, says a report.
The World Gold Council has published a review of the gold market for 2012 and found that prices rose year-on-year though sales dropped in the fourth quarter – and so did the price.
Their report says the commodity was at its most stable in 10 years though trading was ‘quiet’.
The WGC says investor fears of the US ‘Fiscal cliff’ crisis put many off investing in gold and they say the ‘relative market calm’ will persist through 2013.
However, last year was the 12th consecutive year that the price of gold increased, despite the weak sales performance in the fourth quarter, with prices rising 8.3% in the year to end at $1,657.50 /oz (£1,054.46).
Prices set to rise
Prices should continue to rise this year, says the WGC report, with the global economic recovery continuing to be led by China and the US.
They add that sovereign debt and the private sector indebtedness will act as brake on growth for the corporate sector with sentiment for the buying of gold in tough times remaining high.
A WGC spokesman said: “Many investors and analysts are beginning to question whether the era of low interest rates is coming to end and we see that the situation is far from certain in the first half of 2012 but things will return to normal in the second half in the US and then later for Europe and Japan.”
The WGC explained the ‘premature’ ending of quantitative easing in the US and some other countries created concern for some gold investors.
Investors believe that quantitative easing helps fuel inflation – and gold prices – while keeping interest rates low, which support gold as a sound investment.
The WGC spokesman added: “In times of market stress, gold will continue to be a capital preserver because it tends to perform well against other assets which might be struggling or when investors become anxious.
“For this reason, gold has the ability to transcend a country or a region’s economic fortunes and long-term demand is fuelled by a number of different factors which includes economic expansion which is evidenced by the enormous demand of gold in emerging market economies.”
Demand for gold is led by China and India, with the latter, says the WGC, facing a number of hurdles as the government tries to stabilise a sluggish economy.