Gold expected to be popular investment in 2010

Tuesday, 29 December 2009 19:43

Gold is the ultimate mattress investment and likely to prove popular with investors in 2010, it is claimed.

Despite soaring in prices in 2009 the supply and demand outlook for the coming year makes it a must have in many portfolios, according to leading experts. Financial planners are expected to consider gold as another alternative investment for portfolios in 2010.

‘Gold provides liquidity, it’s the ultimate mattress money, the ultimate form of insurance for financial disasters,’ according to Rachel Benepe co-manager of the First Eagle Gold Fund. ‘Today, investors' risks include inflation, deflation, currency debasement and geopolitical concerns. We recommend a 5% to 10% allocation to gold, to protect against those and other potential risks,’ she added.

The price of gold actually plunged during the perilous fall of 2008, from over $850 an ounce in the middle of September to barely more than $700 by late October. In 2009, though, gold soared to record highs, topping $1,100 in early December.
‘Gold went down in 2008 because sellers needed cash during the financial crisis. Once the worst of the crisis had passed there were more buyers than
sellers for gold, boosting the price,’ she explained.

Supply and demand fundamentals continue to be positive in 2010, according to Benepe. Even if prices rise, the supply of gold may not meet the increased demand because gold is very scarce. There are more ounces of gold above ground than below and mine grades are going down.

According to Suki Cooper, an analyst from Barclays Capital, current fears over inflation and the state of the US economy could drive gold prices in the long term. ‘The investment sentiment towards gold is very positive,’ she said.

Ian Henderson, of JP Morgan Natural Resource Funds, also believes that buying gold is an attractive proposition. ‘I think that gold is on an upward
trend and perhaps $1,000 an ounce will be the new floor, although it could rise above $1,100,’ he said.

Macquarie Investment Bank has raised its forecasts for both gold and silver prices. Its projections call for a $1,150 and $1,100 per ounce average gold price in 2010 and 2011, respectively.

And according to Jeffrey Nichols, managing director of American Precious Metals Advisors, gold could hit $1,500 or higher by the end of 2010. Only a rapid recovery in the dollar would threaten the upward trend, it is also claimed. ‘The only way that gold can underperform is if the US and
other developed economies recover in a conventional way by cutting spending and raising taxes while at the same time embarking on a period of stable
economic growth,’ said Ted Scott, director, UK Strategy, F&C.