Archive for October, 2011

Golden News from Qatar – Other Gold Notes

October 14th, 2011 No comments

On September 5, the price of gold reached its 2011 high of $1,923.70 an ounce. The price declined to $1,623.97 by early October – a drop of more than 20 percent. However, investors who made the decision to buy gold on January 1 have still enjoyed a return of 14%. Despite this excellent result, the sharp drop in the price of gold from its September high has left investors questioning gold as a short-term and long-term investment. And with good reason: during the recent decline, the price of gold fell by more than 3% in a day on eight days as many investors elected to sell gold.

Until September 6, the factors influencing the rise in the price of gold were clear and consistent:

  • Global turmoil in equities markets leading to significant declines in share indexes.
  • A weak dollar.
  • Quantitative easing in the US (printing money).
  • The Greek debt crisis and Eurozone trouble.
  • Strong demand for gold from China and India.

These factors are still in place. So…what caused the precipitous drop? And is it time to sell gold or buy gold? To explain the drop, many financial analysts pointed to huge gold sell-offs from some of the larger investment funds. John Paulson, a hedge fund manager, sold bullion to cover September losses. Other fund managers were forced to imitate the move. There was also some profit taking. And investors who decided to buy gold while the market was toward the $1,900 an ounce mark have been waiting for the price of gold to show signs of increasing before they buy gold again.

There’s ample signs that upwards momentum for gold will start to build again. Last week, The Daily Telegraph in London broke the news that Qatar Holdings (the Qatari royal family) invested $1 billion in European Goldfields, a mining company that’s about to start mining gold in Greece. The Qataris are, according to the newspaper, actively looking for more opportunities in gold mining. Two of the more prominent banks, Credit Suisse and Lazard, advised Qatar Holdings and this shows long-term optimism about the price of gold among analysts – and this provides incentive to buy gold.

In previous blogs, we’ve stressed the strong link between the price of gold and the strength (or weakness) of the U.S. dollar. At the beginning of October, the dollar declined and gold experienced a bounce upwards. So for those investors looking to buy gold or sell gold, keeping an eye on the United States Federal Reserve is important: especially if ‘The Fed’ decides to initiate a third round of quantitative easing as this would devalue the dollar.

Despite a bad September for the price of gold, experts remain optimistic the price of gold will continue to increase. The factors that have influenced the 14% increase in the price of gold remain in place. Once investment managers have finished their brief sell-off to cover losses in risky investments, some downward pressure will have been removed. Credit Suisse believes gold will reach $1,850 by the beginning of 2012 and Morgan Stanley’s 2012 forecast for the price of gold is now up to a significant $2,200 per ounce.

Contact us at the Australian Bullion Company if you’d like to know more.

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