A golden opportunity?
By Meera Patel | 09 Jan, 2008
From poor retail sales to soaring fuel costs and the possibility of a US recession, it’s not surprising things seem a little subdued in the markets. But it’s not all doom and gloom as gold has started off the New Year in a more impressive fashion.
The gold price recently hit an all time high rocketing to $875 per ounce surpassing the previous high of $850 set in 1980. This move was a result of a continued weakness of the US dollar, concerns over inflation and ongoing financial market uncertainties.
You may question if the gold price can go any higher? To put it into perspective a gold price of $850 per ounce in 1980 would be the equivalent of more than $2,300 an ounce today after adjusting for inflation. But looking at it the other way, this means that it can have long cycles and is not a one way bet.
There are few signs of demand falling with about 300 tonnes a year used in industry, most notably in electronics. Demand for jewellery, particularly from the emerging markets is also rising as individuals become wealthier. Gold also acts as a hedge in an economic slowdown. On the supply side, production of gold is on the decline which is also keeping prices firm. With these factors in mind many experts are predicting the gold price will exceed $1,000 an ounce this year.
We believe there is further room for growth in this area of the market and there could be ways to benefit. The BlackRock Merrill Lynch Gold & General fund is well positioned to benefit from further strength in the gold price. This fund is on our Wealth 150 list of preferred funds. We always suggest that clients spread their assets across different assets, and gold does add diversity but make sure you don’t have too many eggs in one basket so you could consider a broader natural resources fund, many of which have exposure to gold and other commodities as well. For more information on our favoured funds, please refer to the specialist sector of our Wealth 150 list which contains our favoured resources funds.
