Gold is forever

The international investment funds, commodity analysts and leading players in the Middle East gold market said the yellow metal will be the star commodity to follow in 2012. They are confident that the price lacklustre of the precious metal will not last and it will surely hit a new record within 2012.

In addition to strong demand and safe haven status, market leaders consider continuing environment of low interest rates, low risk appetite and limited supply of the precious metal as chief reasons for the glittering outlook next year. The gold rose around 13 per cent in dollar terms this year and it may continue the double-digit growth for at least next couple of years.

Bullish forecast

There is no second opinion that gold possesses an allure that has increased over the years. The yellow metal hit an all-time high of $1,921.15 in early September and marked 2011 as 11^th straight year when its prices closed on higher side.

Although, gold prices have fallen about 16 per cent since reaching a record in September and many analysts expect the correction will continue until first quarter. But the majority stakeholders and industry players see gold prices rallying next year, perhaps to new records, in the latter half of 2012.

“Gold prices will rally again in 2012 to reach $2,000 to $2,500 per ounce because demand is still strong and the precious metal is still seen as a safe haven,” according to Sabine Schels, a commodities strategist at Bank of America Merrill Lynch.

Despite the correction in gold prices in recent months, Schels said sustained investor demand would result in gold prices averaging $1,850 in 2012, up from $1,573 in 2011.

Deutsche Bank also bullish on gold outlook and forecasts that prices will hit $2,000 an ounce in the second half of 2012.

Wall Street giant Goldman Sachs said the yellow metal will peak at $1,900 per ounce next year, forecasting an annual average of $1,810.

“Gold’s endearing appeal as a safe haven will not fade. It will cross $2,000 an ounce in 2012,” Firoz G. Merchant, chairman of Pure Gold Group, told Khaleej Times.

“Gold has become a desirable investment around the world.”

The gold miners around the world also remained confident the price lacklustre of the yellow metal will not last and that it will surely hit a new record within 2012.

In a survey by PricewaterhouseCoopers (PwC) for its annual gold price report, 80 per cent of the mining companies said gold will increase in 2012 and will continue to do so to reach pinnacle $2,000 per ounce within the same year.

Safe haven

Gold is traditionally considered a safe haven in times of uncertainty because it helps manage risk effectively by increasing risk-adjusted returns and reducing extreme losses for a range of portfolios combining traditional and non-traditional assets. An allocation to gold can benefit investors with different levels of risk tolerance and diverse allocations denominated in US dollars, euro and pounds sterling.

According to the World Gold Council report, gold acts as a cost-effective form of protection that does not negatively affect and sometimes benefits long-term expected returns, while reducing risk in times of economic turmoil.

“Gold’s unique characteristics make it a good source of diversification, and also provide a foundation which investors can use to manage risk and preserve capital,” Juan Carlos Artigas, investment research manager for the World Gold Council, said.

Bull run to continue

Analysts and market players said that the bull run in gold market will continue for at least five years because investors seek refuge from weak currencies, volatile stocks and an uncertain global economic outlook. Also, there is strong demand for precious metal from India and China, and buying of gold by central banks to shore up their balance sheets.

Moreover, the production is unable to match the investment demand, which is increasing with new products such as exchange-traded funds.

“Even though the prices are fluctuating at the moment, it is still the best investment as compared to other options such as bank savings, equity and property, which have all seen deeper and worse instability and fall in value,” Merchant said.

No impact on jewellery

Merchant said demand for gold jewellery has not been affected by the high prices in 2011. He said the consumers have come to accept the fluctuations in gold price and have adjusted to it by buying lower volumes of jewellery or opting for light weight pieces.

“The demand for gold jewellery is driven by age old proven belief in the intrinsic value of gold, and also traditions and festive occasions. I believe there will always be demand for gold jewellery,” he said adding that Pure Gold’s expected overall growth in 2011 is around 25-30 per cent.

To a question, he said gold prices will remain bullish due to economic uncertainties, but this will not affect jewellery demand or sales in 2012.

Damian Rakitha, head of brands Middle East, Aaron Shum Middle East, echoed the same views and said the jewellery industry will not have a major setback due to bullish prices.

He said the jewellery business across the industry could expect around 15 per cent to 20 per cent growth considering the market conditions especially on the economic front.

“Jewellery will always be a good investment in today’s market climate where currencies are so uncertain.

“People do buy more jewellery when prices go up hoping for better investment and especially the mindset of the Middle East and the Subcontinent people who buy jewellery mainly for investments point of view, so I think the industry will be steady in the Middle East.”

He expressed the hope that 2012 will be a good year for the industry and the appetite for jewellery in the Middle East and subcontinent will always be there.

Raj Sahai, director-retail, Damas, said the fluctuating price of gold over the past 12 months has triggered the emergence of several interesting jewellery trends. For instance, more people are now considering gold jewellery as a good, solid investment, even for smaller purchases.

“In general, gold jewellery is witnessing a big resurgence in line with the growing consumer interest in the metal.”

He said there is also a large segment of the market who considers jewellery as a fashionable item and the perfect gift, so the price of gold is less of a factor compared to the need of wanting beautiful jewellery. “People will still buy jewellery, but their choices may change to match their budgets.”

“The bullish gold has affected the designs as more people are looking for light weight everyday jewellery that is crafted using special technology to help the jewellery maintain its affordability.”

To a question, he said retail activity across all sectors is pretty strong. “We are now entering into the peak season for jewellery purchases, with a lot of important occasions coming up soon. We are well prepared and planning in a big way to celebrate the festive season followed by Dubai Shopping Festival next month.”

Anuraag Sinha, managing director of Liali Jewellery, presented a different case and said huge fluctuations in gold prices did create a setback for jewellery sales initially during the third quarter. “Usually the sales of gold jewellery drops and many customers are investing in gold bars and gold coins instead. So the overall demand for gold and the confidence of customers in gold remains. Then towards the festive periods consumer confidence has always come towards fine jewellery.”

He said confidence level of consumers did improve slightly in 2011 compared to 2010. “2011 has been better for us then the previous year with improved sales coming from both residents as well as the tourists. We consolidated our business in 2010 and 2011 and look forward to grow conservatively at 20 per cent to 30 per cent in 2012.”

In reply to a question, he said jewellery in 18k or 22k gold are merely preference of consumers based on their culture and traditions.

“As per our experience, the Asian clientele still prefers jewellery in 22k and our Western expat clientele prefers 18k gold.”

“We have overcome the impact of the increasing gold prices by offering consumers great value for money products in diamonds, pearls and coloured jewellery,” Sinha concluded.

muzaffarrizvi@khaleejtimes.com