Gold fell 10%; silver plunges 23%

Spot gold prices closed on Friday at $1,641.80 per ounce, down 9.4 per cent in 30 days, and silver closed at $31.33 per ounce, a decline of 22.83 per cent in a month that has seen precious metal lose their safe haven appeal and the US dollar becoming fashionable once again among risk-averse investors.

Although the yellow metal has recovered from its flash fall in September that saw it briefly hit a low of $1,530 per ounce, gold is still down 14.5 per cent from its peak, reached in early September, while silver has had 38 per cent wiped off its value from its all-time peak of over $50 per ounce.

Even as investors seem to be favouring the safety of greenback over that of the precious metals, Gerhard Schubert, Head of Precious Metals at Emirates NBD, believes that there is no love lost between gold buffs and the yellow metal.

“With the underlying political and economic uncertainty, gold’s role as an asset class and a means of portfolio diversification is growing. Mistrust for fiat currencies is also a global reality that makes gold a good currency surrogate,” he said recently while addressing senior officials and members of NASDAQ Dubai, the Dubai Financial Market (DFM), Abu Dhabi Securities Exchange (ADX) and the Dubai Gold and Commodities Exchange (DGCX).

The exert claimed that the demand for gold will continue to hold strong due to the ongoing sovereign debt crisis in Europe, sluggish recovery in the US and more uncertainty over the state of the Chinese economy.

Addressing the gathering of industry professionals at the “Diversification opportunities in gold” seminar held at Dubai Financial Market, Schubert said that gold is no longer just a safe-haven commodity. “With disposable incomes in emerging markets on the rise, central banks, sovereign wealth funds, pension funds and individual investors are now drawn to gold as an attractive investment choice,” he said while highlighting the macroeconomic factors that, combined with consumer behaviour, drive demand for gold.

Dismissing any notion of a gold bubble, he went on to say, “Gold investments are not limited to speculation as the asset class is invested across segments. For example, central banks have turned into net buyers, driven by political decisions rather than price.”

Schubert went on to highlight that even over the past two decades gold prices, relative to treasuries, have steadily risen. “Gold has always been regarded as a safeguard against inflation, political turmoil and economic crisis. That is why in today’s scenario our outlook for the precious metal remains bullish.”

Sounding a cautious note, he said that the investment community needs to be mindful of events as they unfold in the second half of 2012, the results of next year’s US presidential elections as well as a resolution of the European debt crisis is likely to influence consumer and investor demand for gold. In the short term however, he forecast that demand is likely to outpace supply.

“When it comes to portfolio diversification, this should be based on risk appetite, but we recommend 5-10 per cent of investor portfolios have exposure to gold,” he said. “It is a good insurance policy and hedge against global uncertainly and policy failure. It is also a good active strategy for investments and governments.”

There are a number of channels through which gold investments can be made. These include Physical Gold, Gold Futures, Exchange Traded Funds (ETFs) and Gold Certificates, each having their own unique characteristics.

“All the various channels available offer advantages to different customer segments,” said Schubert.

“For semi-professional traders and experienced investors, we would recommend Futures as the most suitable option, since it is the fastest and most liquid instrument, requiring only a small initial investment to buy a large amount of underlying value,” he concluded.

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