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Gold: An investment to be treasured

/ 01:10 AM November 21, 2011

Gold is often considered a safe investment in times of financial uncertainty. But some investors may not be so sure in these times. Recently, prices of the yellow metal have been behaving erratically, making some think, “Is gold still a safe haven?”

Financial and commodities experts said gold’s strong start in 2011 would likely continue on a generally higher price trend on the back of demand for jewelry, central bank purchases, and gold bar and coin investments in markets like India and China.

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That does not mean, experts said, that gold prices would inch up steadily every single day. It is natural for prices to get erratic and then settle at new levels, especially when prices move too high, too fast, they explained.

In the Philippines, investors do not have access to gold bars and coins, unlike in places like Hong Kong, BDO Capital & Investment Corp. president Eduardo Francisco said in a phone interview.

People here looking to invest in gold tend to buy jewelry or, alternatively, invest in stocks of gold mining companies that are listed on the Philippine Stock Exchange.

“That’s why the stocks of Lepanto (Consolidated Mining Co.) and Philex (Mining Corp.) are up,” Francisco said, adding that gold-related investments are expected to remain “attractive” over time.

Volatile

According to the UK-based World Gold Council, global gold demand in the second quarter of 2011 measured 919.8 tons, valued at $44.5 billion—up from the $42.6 billion reported in the same period in 2010. The Council said in a report that this was the second-highest quarterly value on record, next to the $44.7 billion in the fourth quarter of 2010.

India and China apparently accounted for 52 percent of global gold and coin investment, and 55 percent of global jewelry demand. The council said this demand would likely continue “due to increasing levels of economic prosperity, high levels of inflation, and forthcoming key gold purchasing festivals.”

Elsewhere, the council said, “the impact of the European sovereign debt crisis, the downgrading of US debt, inflationary pressures, and the still-fragile outlook for economic growth in the West are all likely to drive high levels of investment demand for the foreseeable future.”

The World Gold Council, in its website, is described as a market development organization for the gold industry, with 22 members constituting the world’s leading gold mining companies. The council said it works within the investment, jewelry and technology sectors.

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As for Philippine production, the Mines and Geosciences Bureau (MGB) forecast Philippine gold output to rise 8 percent to 44,197 kilograms from last year, with value seen up by 9 percent to P77 billion. Production of all other metals is also projected to rise by double digits.

MGB director Leo L. Jasareno said the state agency made a conservative estimate given pronounced volatility in gold prices this year.

“Gold prices are erratic, although the general trend is upward. The higher the price, of course, the more encouraging for producers. But producers need to monitor the market closely and may have to adjust their output frequently to match demand,” Jasareno said.

Experts say the investing mindset should be for the long term. Gold prices have been volatile recently because of ongoing political and economic uncertainty in various parts of the world.

Will gold prices hold up?

While the World Gold Council does not make predictions about the gold price, it has reported that the underlying fundamentals support continued gold buying from various sources.

“Gold continues to demonstrate its attributes as a hedge against credit risk, currency risk and inflation/deflation risk amidst the ongoing economic uncertainty. There are few people that expect these factors to end soon,” said Marcus Grubb, managing director for investment at the World Gold Council headquartered in London.

In fact, the price of gold has risen every year since 2001, and the market has consistently adjusted to higher price levels, Grubb said via e-mail.

Officials of mining companies with projects in the Philippines are equally bullish.

“Gold tends to be an emotionally traded commodity, so it’s really hard to tell. But we have an optimistic long-term outlook that gold generally remains attractive to investors in the long term and especially during periods of financial or political turmoil,” said Mark Williams of Sagittarius Mines Inc.

Gold adds value

Renato Claravall, CFO of Benguet Corp., the oldest mining company in the Philippines, said gold-related investments would remain attractive as part of a range of investments.

“Investors keep getting drawn to gold because of the confidence that you’ve invested in something tangible, something that exists physically,” Claravall said.

The World Gold Council, said Grubb, advocates “strategic holding” of gold, regardless of price.

“Our analysis of gold’s strategic value is always made on the basis of conservative assumptions about the price path. Through this analysis, gold has proven, time and time again, to add value, irrespective of the price level,” Grubb said.

For Filipinos whose gold-related investments tend to be either through jewelry or securities, there is a piece of good news: Some market commentators have apparently said that gold mining stocks are undervalued and could present buying opportunities as a result.

“There is a significant amount of free cash flow in the industry, which some believe will give (gold) producers flexibility to pursue acquisitions, fund growth projects and substantially increase dividends,” Grubb said.

In short, experts said, gold may rise and fall in price from day to day but, over time, there’s no dulling the yellow metal as a safe investment.

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