x Abu Dhabi, UAETuesday 23 January 2018

Investors flee to gold as world economy is shaken

Analysts say gold could touch $1,000 again as the global financial crisis deepens and investors seek shelter.

DUBAI // Analysts are predicting that the price of gold will once again surge above US$1,000 an ounce as investors turn to the metal as a haven from market turmoil. Gold's status as an inflation hedge and an alternative to the US dollar has resulted in a surge of buying in the Middle East, China and Asia. "There is very much the possibility before the end of the year that we will see gold prices moving to four figures," said Philip Newman, the director of GFMS, a London-based precious metals consultancy. "People are concerned about the banking environment, particularly as you have many names disappearing and other names rolling in with other banks. In such cases, you have this view of gold as a safe haven." Gold futures for December rose yesterday after US congressional leaders rejected the government's proposed bank rescue plan. December delivery rose $5.90, or 0.7 per cent, to close at $894.40 an ounce on the New York Mercantile Exchange, driven by historic losses in the Dow Jones Industrial Average. On March 17, the metal reached a record $1,032.70 an ounce as soaring crude oil prices spurred investors to seek protection against inflation. Analysts say that physical gold buying will also soar. Coin dealers in the US and Canada have reported a surge in purchases of coins and other gold products. Last Thursday, the US Mint was forced to temporarily suspend sales of its American Buffalo 24-carat gold one-ounce bullion coins because strong demand depleted its inventory. Industry insiders say the Ramadan holiday and the summer tourism season, coupled with lower prices, have also led to a surge in gold jewellery sales. With gold prices expected to rise, many new investors are making jewellery purchases in an effort to capitalise on the temporary lull in prices. "People reacted significantly to the change in prices," said Swapna Nair, the general manager of the Dubai Gold and Jewellery Group. "Sales last month have been amazing for us because prices crashed and the shopping festival is going to end, so everybody ran and bought gold before the prices went back up." A falling US currency also makes metals, priced in dollars, cheaper for holders of other currencies. Copper, for example, rallied 26 per cent in the first quarter, more than any other metal on the Reuters/Jefferies CRB commodity price index, reaching a record $4.26 on May 5. Since then, the price has fallen 32 per cent as US growth faltered and prospects for a rebound were eroded by the failure of banks burdened by subprime mortgage loans. "Gold has not been a natural home for some of these investors, but its role is still an important one as a hedge against other assets, particularly as we see many of them significantly weakening," said Mr Newman. "The gold market is quite tiny compared to many other markets, so it doesn't take a great deal of money to push the price up." Daniel Smith, a metals analyst at Standard Chartered Bank, said that while a $1,000 gold price was inevitable, it would not reach those levels until next year. "The most likely scenario is that there will be a bailout of the US financial system," Mr Smith said. "While we will probably continue to get more bad news, it won't be as bad as what we've seen over the last couple of weeks, so gold should stabilise." vsalama@thenational.ae