Gold expected to soar from already record highs, some experts believe

Written by Ray Clancy

Wednesday, 29 September 2010 10:26

Gold is set to soar from its record high if the prospect of further monetary stimulus in the United States or other major economies is realised, it is claimed.

Pau Morilla-Giner, senior portfolio manager and head of alternative investments, equities and commodities at London & Capital, said the metal is likely to benefit as a safe store of value as faith in the dollar, yen, pound and euro wanes.

‘Central bankers will keep looking at consumer confidence, retail sales and unemployment data, and if they see these three key milestones posting very clear signs of deceleration, they will certainly have no qualms about stepping it up in terms of quantitative easing,’ hew said.

He believes that currency values are likely to suffer a backdrop of persistently weak economic conditions. ‘You have a widespread incentive for anyone in Washington or London or Brussels to effectively devalue their currency to make sure they become competitive versus each other. You have people in Delhi or Beijing on top of $3 trillion in reserves in dollars who are worried about what is going on, and gradually but steadily migrating some of these reserves, not all of them, not even a big allocation, but some into gold,’ he explained.

The US Federal Reserve has already opened the door to pumping hundreds of billions of new dollars into the economy, saying it stood ready to provide more support for economic recovery. The dollar slipped sharply in response.

The Bank of Japan sold a significant amount of yen onto the currency markets last week to temper the currency's strength, while the European Central Bank and Bank of England both applied monetary stimulus measures in the last year.

Morilla-Giner said he wouldn’t be surprised to see gold reaching $1,350 an ounce in 2010, though he expects the remainder of this year to see volatile trade. By the middle of 2011, prices could be in excess of $1,700, he said.

‘My expectation is that as and when you see signs of additional rounds of quantitative easing, gold and other precious metals will be trending up slightly more aggressively. The next few months I expect to be volatile,’ he said.

Many investors see gold as a safe haven in times of financial uncertainty and with some economists predicting its price will stay high for several years. The price of gold has had a rich run of performance, hitting repeated highs in September.

However, investors should not make the mistake of seeing gold as the security in their portfolio, according to Nigel Walker of TQ Invest. ‘It is not cash, pays no income and can be notoriously volatile. For these reasons, you should always limit exposure to gold and commodities to a very small portion of any portfolio, irrespective of how convinced you are that it will perform well,’ he explained.