Gold ‘remains in long-term bull market’
Dubai, May 31, 2012
Gold remains in a long term bull market for the investors, said a study, adding that investors are starting to look at lower gold price as a buying opportunity.
The recent decline in gold has some investors puzzled as the precious metal is supposed to be attractive when global economic uncertainty rises, said the analytical study conducted by Trust Securities DMCC, a clearing broker member of Dubai Gold and Commodities Exchange (DGCX).
During the debt crisis, investors turned to gold as a safe haven which helped propel it to a record high of around $1920 in September 2011, the study pointed out.
More recently, gold has done a better job of tracking the equity markets and moving opposite the US dollar like other commodities, according to the study.
In late-February, gold rallied up to a high of $1790.60 per ounce and has since fallen as much as 14.5 per cent to around $1526.9 per ounce this week (ending May 31). The decline off the record high has been a little over 20 per cent.
Bruce Powers, head of Research at Trust Securities, said: “Lately, instead of jumping into gold for safety, investors have flocked to the US dollar, US Treasuries and German bonds.”
“Recent downward pressure may have been amplified by investors liquidating gold to cover weak positions in the equity markets. However, even with the recent decline, gold remains in a long-term bull market.”
He said the highly liquid gold futures market can be used as a mechanism to purchase physical gold. Investors can lock-in the purchase price of gold now through a futures contract, which offers the benefit of leverage, by depositing only a portion of the total value of gold they are purchasing.
It’s only when the physical gold is delivered to the investor that they pay the full value of their purchase, said Powers.
Asim Khan, CEO, Trust Securities, said: “Investors are starting to look at the lower gold price as a buying opportunity, either to re-enter the market or add to existing long-term positions. Some clients are even using gold futures as a method to purchase physical gold.”
An investor buys a gold futures contract on the DGCX and then holds it through to the expiration date of the contract rather than closing the position prior to expiry.
The DGCX then delivers a Dubai Gold Receipt under the Dubai Multi Commodities Centre’s (DMCC) Global Multi Commodities Receipt (GMR) platform, which verifies the quality and quantity of gold. An investor then takes delivery of physical gold which can be stored in an approved Dubai vault.
Bruce added: “Our analysis indicates that there is a good chance that gold prices may be heading towards a bottom for now.”
“As the European debt crisis continues to unfold with new concerns over Greece and now Spain, plus Moody’s downgrade of Italy’s banks, as well as a big trading loss surprise at JP Morgan, investors could once again see gold as a safe haven alternative.” – TradeArabia News Service