Gold expected to sparkle with forecast to set new high
Gold ingots are stored at the headquarters of the German Central Bank in Frankfurt, Germany. (AP Photo/Handout/Deutsche Bundesbank)
The Canadian Press
Published Thursday, January 17, 2013 3:18PM EST
MONTREAL -- Gold is expected by many to continue to sparkle as an investment opportunity over the next two years despite a 12-year bull run that briefly took the precious metal as high as US$1,900 an ounce before pulling back.
Investment strategist Gavin Graham says gold should rise from its current price of US$1,689 an ounce to approach the 2011 high price later this year before perhaps hitting US$2,000 in 2014.
"I know a number of people have got US$2,000 an ounce pencilled in at some stage over the next 18 months to two years and that's not an unreasonable forecast," the president of Graham Investment Strategy Ltd. said.
Gold saw its smallest price increase since 2008 last year and, adjusting for inflation, it remains below the real all-time peak of US$850 per ounce set in 1980. That's equivalent to a nominal value of about US$2,500.
Once gold breaks through US$2,000, Graham believes it could attract skeptical buyers.
"There's still more legs in it even though it's gone up a lot."
Serge Pepin, vice-president Investment Strategy of BMO Global Asset Management, also sees gold rising despite fears that India, the world's largest buyer of the metal, could slap a bigger tax on gold imports.
Increased demand for jewelry due to improving economic conditions and the prospect of higher interest rates, should propel demand for gold as a hedge against inflation, he said.
"We still see some upside but if you look at where it was 10 years ago to where it is today, we think that the pace of growth in gold will be relatively subdued -- positive but subdued," Pepin said.
He also points to gold hitting $2,000 over the next 18 to 24 months.
Not everyone agrees.
Goldman Sachs recently lowered its price forecasts for gold in 2013. The U.S. investment bank cut its six- and 12-month forecasts by about seven per cent to US$1,800 per oz. It also introduced a 2014 gold price forecast of US$1,750.
Skeptics aside, there are those who gold as ain investment for uncertainty times.
Some observers believe the looming debt ceiling crisis in Washington could support higher bullion prices. Since bullion and gold futures are sold in U.S. dollars, a devaluation of the American dollar tends to push up the gold price.
"We think that over the next six weeks it will be a good catalyst for silver and gold to go up because the United States are having the same problems where they can't pay off their debts," said Jamie Cohen, chief strategy officer for Canadian Bullion Services, which sells metal bars to investors.
But Graham doubted the debt ceiling issue will have any more impact than the recent "fiscal cliff" deadline that came and went at the New Year. He said the real catalyst is central bank efforts to boost liquidity.
He suggested that investors' exposure to gold be least 10 per cent of their equity holdings. Pepin recommends five to 15 per cent depending on an investor's portfolio and goals.
An easy, and perhaps cheapest, way to buy gold is through exchange-traded funds, such as GLD, the largest physically backed gold exchange-traded fund in the world. Other options include New York-based GDX or iShares XGD (TSX:XGD). About 13 per cent of iShares S&P/TSX 60 Index Fund includes gold miners.
Investors can also invest in gold mining companies such as Barrick Gold (TSX:ABX), Goldcorp (TSX:G) or Agnico-Eagle (TSX:AEM).
However, gold mining stocks have been under pressure because of rising costs. The TSX global gold index finish down about 19 per cent last year.
"They're about as cheap as they've been in the last 20 odd years and assuming that they're able to get a handle on their rising costs -- which they're certainly trying to do in a very determined fashion -- then they should benefit from higher gold prices," Graham said.
You can also buy gold through a bank or company like Canadian Bullion Services, but buying gold coins or bars costs a premium, including sales tax, storage costs for a safety deposit box and insurance.
"If you're owning the physical product it's just like holding a baseball card at home," Cohen said.