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Gold will Shine On

Published January 2013 in the magazine: Macau Business



Many investors are putting their money into gold to hedge against inflation, but gold-related stocks may prove to be a better deal.


Gold will Shine On

by André Ribeiro



Just Ask George


In the third quarter of last year India and Greater China continued to be the biggest source of consumer demand for gold, according to the World Gold Council. Together they accounted for 55 percent of demand for gold jewellery, bars and coins.

My expectation is that not only Chinese private investors but also the People’s Bank of China will continue to accumulate gold at increasing rates. Many analysts believe that Beijing holds a far higher volume of gold reserves than the 1,054 tonnes that the World Gold Council thinks it holds. The mainland imported 286.8 tonnes of gold from Hong Kong in the first 10 months of last year, more than triple the amount it imported a year earlier, according to data from the Census and Statistics Department of the Hong Kong government.


Some of the world’s leading fund managers have been building up their gold positions in recent months. Soros Fund Management LLC increased its holding in SPDR Gold Trust, the biggest gold-backed exchange-traded product, by 49 percent in the third quarter of last year, according to U.S. Securities and Exchange Commission filings. John Paulson has a considerable portion of his hedge funds tied to gold bullion, including a sizeable stake in SPDR Gold Trust, in which his Paulson & Co is the biggest shareholder. Naguib Sawiris, the second-richest man in Egypt, bought a Canadian gold producer for almost US$500 million in July.



Price Parabola



Ray Dalio, one of the world’s most respected fund managers, told CNBC in September that gold should be in everyone’s portfolio. Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co, said last February that gold is a store of value when there is little value left in paper.

I personally regard gold as a form of saving, whereas select gold-related shares can be a very attractive investment, providing higher returns, especially these days.

Buying precious-metal-related stocks is certainly not free of risk. But there is risk in buying any stock. Here, the risk can be minimised and higher returns achieved by choosing stocks of companies that have proven management practices and sound assets, work in less politically risky parts of the world and are on track toward big growth.

I believe the parabolic trend phase for gold prices is still ahead of us, and that a medium-term price of US$5,000 an ounce could be a conservative estimate. History indicates that prices between US$5,000 and US$10,000 may be realised in the longer term. Increases of 200 percent to 500 percent or more in prices of select gold-related shares will not be uncommon in the next three to five years.




The views expressed here are those of the author and are not investment calls by Macau Business


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