[miningmx.com] — GOLD may appreciate a further 10% to an average
price of around $1,850 per ounce as negative real interest rates in the US, the UK and
Europe continue to bolster the appeal of the metal as an alternative investment,
according to Investec Asset Management, which oversees about $99.4bn on behalf of
clients.
“We’re bullish on gold and believe investors should continue to hold it,’ Daniel Sacks,
a portfolio manager and precious metals analyst at Investec Asset Management, said
in a telephone interview from Cape Town.
“The conditions that have been in place over the last few years are still there and
that should continue to be supportive of gold.’
The gold price has advanced by an average of 17% per annum since the bull rally in
the metal began in 2001, Sacks said. Given that bullion averaged around $1,600 an
ounce last year it suggests that the metal may reach an average of $1,872 per ounce
this year.
Nevertheless, Sacks says that Investec has opted for a slightly more conservative
price estimate of around $1,850 an ounce for the models it uses to estimate the likely
profitability of gold miners.
“It’s difficult to determine an exact fair value for gold, but we think it’s not unrealistic
to see it averaging around $1,850 this year,’ says Sacks. “It’s the number we’re using
in our models.’
Spot gold traded at around $1,679.73 in Singapore, while bullion for June-delivery was
at $1,680.30 on the Comex in New York, Bloomberg data showed on Tuesday.
Sacks said that since gold was now generally regarded as a currency in its own right,
the metal’s prospects need to be measured against the likely fluctuations in other
currencies – particularly the dollar, which is still the world’s reserve currency and the
unit in which bullion is priced.
Efforts by countries around the world to devalue their currencies in order to bolster
their economic recoveries following the 2008 financial crisis, would further support the
gold price, said Sacks.
“Gold is truly a currency, so to determine its value you need to look at what other
currencies are likely to do,’ said Sacks. “Because we’re in a world where everyone is
trying to debase their currencies by printing money, it stands to reason that the
supply of other currencies will grow faster than the supply of new gold. That will be
supportive of the gold price going forward.’
Since December 2008, the US Federal Reserve has embarked on two rounds of so-
called quantitative easing by purchasing a cumulative $2.3 trillion in government debt
in an effort to inject liquidity into the world’s biggest economy.
The Bank of England also raised the ceiling for its quantitative easing programme in
February, increasing it by £50bn to a total of £365bn.
At the same time the Fed has cut its benchmark rate to a target range of between
zero and 0.25%, keeping it there for the last three years in an effort to bolster
economic growth. The record low borrowing costs helped inflation quicken to 2.9% in
February from a year ago, well above the Fed’s 2% target.
The UK’s benchmark interest rate is also at a record low of 0.5% while inflation has
reached 3.4% in February. The 17-nation euro-zone also saw its inflation rate
accelerate to 2.7% in February, thanks to a record low central bank rate of 1%.
“Negative real rates in much of the world mean the opportunity cost of holding gold is
negative,’ said Sacks.
