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There's always a bull market somewhere eh? Tongue

May 15, 2011
Gold and silver may lose their shine

Just a matter of time before prices slide, some experts warn
By Gabriel Chen, Finance Correspondent

Gold hit a record of US$1,577.40 an ounce earlier this month.

The question for investors now is: Where do gold prices go from here?

There are two opposing views on this. One is that gold's 10-year rally is overdue for a major price correction. The other is that with inflation on the rise, there is a lot of potential for more gains.

Earlier this month, silver - gold's less expensive cousin - also surged to US$49.51 an ounce, near its all-time intraday record of US$50.35 set in January 1980.

Gold and silver are priced in US dollars, so a falling greenback makes them even more attractive to buyers using foreign currencies.

But prices of both metals, as well as other commodities, have been weaker of late due to renewed concerns about global growth.

Still, the bulls believe gold can go much higher, with Standard Chartered reckoning the superbull case is US$4,869 by 2020.

Gold bugs see gold as a store of value, as record-low interest rates erode returns on currencies like the US dollar.

Gold has also benefited from strong jewellery demand from China and India, reduced net central bank gold sales, and a growing appetite for gold exchange-traded funds.

But a growing number of commentators are now cautioning investors to be careful.

While it is hard to predict when the major correction will take place, it will happen, they say. And when it does, gold prices could turn sharply down.

'As the price of gold skyrockets, some are touting gold to be the next bubble,' says Mr Teyu Che Chern, Phillip Futures' chief executive.

DBS Private Bank chief investment officer Lim Say Boon says gold is expensive relative to other assets.

Barclays Wealth Asia strategist Manpreet Gill adds: 'Gold and silver are assets we do not like on a long-term basis.'

While gold has done well over the past decade, it has not always been the case in the 1980s and 1990s, says Dr Shane Oliver, AMP Capital Investors' head of investment strategy.

Gold's spike above US$800 lasted only a couple of days in January 1980, and by the end of the year, it had fallen precariously to less than US$600.

As gold shot up, plenty of new investors were buying, with people getting in on the boom at above US$600.

What took the air out of the previous gold bull market was action by then US Federal Reserve chairman Paul Volcker to raise interest rates to the high teens to tame double-digit inflation.

After 20 years of mostly falling prices, gold languished at US$250 by August 1999.

US interest rates are still an important consideration today. Rising rates may take the wind out of the gold rally and increase the opportunity costs of holding gold.

'With high opportunity costs, gold and silver demand would drop sharply and both metals would trade considerably lower,' says Mr Dominic Schnider, UBS Wealth Management's head of commodity research.

In fact, UBS expects a sizeable retreat in the price of silver towards US$34 an ounce over the next 12 months.

Given the risks that gold and silver may underperform, experts are telling investors not to be overly exposed.

JPMorgan Private Bank's head of South-east Asia investors Nathan Slack recommends a 1 to 3 per cent allocation to gold for clients with moderate risk tolerance and well-diversified portfolios.

Mr Norman Villamin, RBS Coutts' head of investment strategy for Asia, recommends a 3 to 5 per cent allocation to gold for 'more balanced' portfolios.

One way to get exposure is via United Overseas Bank, which offers gold and silver savings accounts. With a passbook, you can trade gold and silver at prevailing market prices.
Silver did touches below US$33 before UBS May 15 report. Not so sure what's "In fact" means and over 12 month some more ....
Silver is going up so I don't suppose it may lose its shine. Infact, it is almost at par with gold being a hedge against inflation. Silver is widely-used in the computer hardware industry, thus, I suppose it will not lose it's shine.
1) A warm sunny welcome to our Asian forum shgrunewald!

It's always refreshing to find new friends from afar Smile

Silver is dual-classed (I still can't forget my RPG gaming days!) - both a store of value like gold and has many industrial uses like you have alluded.


2) MW, your forum has just gone international!
the russians have been happily selling into the strength of gold market.

If they are selling then who else might also be tempted to offload? Rolleyes