Analysts warn against betting solely on gold
Yellow metal forecast by some to hit $1,800 an ounce by 2021
UAE consumers have been warned not to put most of their savings into gold jewellery, even as prices are forecast to hit a whopping $1,800 (Dh6,611) an ounce by 2021 and some big-time investors are already pouring billions of money into the precious metal.
Spot gold dipped yesterday after a few days of gains, as the dollar climbed back up. The price of 24 carat gold stood at Dh159.25 per gram yesterday afternoon, down nearly Dh3 per gram from early April.
While prices seem to fluctuate every week, some investors are expecting gold to hit $1,800 an ounce from just a little over $1,300.
One of them is Egyptian business tycoon Naguib Sawiris, who has reportedly put 50 per cent of his fortune into gold. The billionaire said he believes gold prices will rise further while “overvalued” stock markets will crash, so he has invested half of his $5.7 billion net worth in the precious metal.
“In the end you have China and they will not stop consuming. And people also tend to go to gold during crisis and we are full of crisis right now,” Sawiris told Bloomberg Television.
Vijay Valecha, chief market analyst at Century Financial, cautioned both jewellery buyers and investors against following Sawiris’ advice.
He said that while it is possible for gold to hit $1,800 an ounce in 2021, it is not wise for anyone to put most of their savings into it.
“Gold and other precious metals like palladium and silver are certainly looking to have bottomed out. They appear to be bullish over the long term and the glory days of $1,800 an ounce on gold could be seen by 2021,” Valecha told Gulf News.
Not a wise move
”However, it is never wise to invest 50 per cent of one’s portfolio in a single commodity. Diversification is a much-needed tool for investors of all sizes.”
Valecha said jewellery buyers should ideally set aside 6 per cent to 8 per cent of their money for gold purchases.
Roy Walker, senior financial adviser at Guardian Wealth Management, said that while gold has a place in many portfolios, investors should not rely heavily on the asset class.
“An allocation to gold of half one’s net worth is not something we’d recommend. In this case, it’s a speculative punt on demand driving up the gold price in the nearer term. Having said that, if a billionaire takes a punt and gets it wrong, he’s still a billionaire,” Walker said in an email to Gulf News.
He also pointed out that gold isn’t really an “investment in the true sense,” as it doesn’t yield anything and there’s no future dividend flow to speak of.
“In fact, gold is more like money. It’s relatively scarce, with stable, low annual production. It’s divisible, portable, and accepted as a medium of exchange. Its benefit over fiat currencies is that it can’t be diluted by government policies such as quantitative easing, or cancelled by decree like the [Indian] Rs1,000 note in 2016,” he said.
“These characteristic make gold an excellent store of value. They also make gold popular as a safe-haven in times of market turmoil, and potentially a hedge against inflation.