Gold made the headlines this week with its 20% fall after a steady 12 years of gains. Reports state that the metal’s fall from grace is 28% down from the record high hit in September 2011. The precious metal was down 9% on Monday which was its biggest drop in 30 years.
According to Rob Spanjaard, director at REZCO Asset Management, gold has enjoyed a profitable run since 2000 but became a victim of its own success.
“Gold became accessible to smaller investors and this created a bubble in 2012 where the price of gold stayed the same and it became harder to make a profit from this investment. The drop in price is part of the cycle and it could take a few years for it to recover,” said Spanjaard.
Where to from here?
Over the short term Spanjaard predicts gold could hover at $1200 (R10,997) an ounce for the next few years. He also suggests that individual investors steer clear of the yellow metal for at least a year. “But I don’t think there will be major wholesale shutdowns in the mining industry because the rand is weak and most mines sell in dollars,” said Spanjaard.
One man’s trash is another man’s treasure
Traders said China's unexpectedly low estimate Monday for economic growth in the first quarter, 7.7%, sparked the plunge. But according to Spanjaard, China’s economic growth was not a big concern and gold could still depend on continual investment from growing economic countries like Brazil, India and China. Reuters reported that consumers rushed to buy gold in Asia after the precious metal slumped to a two-year low on Tuesday (16 April).
Friday’s 12 % decline resulted in brisk sales in parts of India and China, which together account for more than a third of global gold demand, according to the World Gold Council.
Gold prices are now more than $500 (R4,582) below a record in September 2011, attracting buyers and sending premiums for gold bars to a 16-month high in Asia.
Some people still appear optimistic about this precious metal. Despite slipped profits gold jewellers in Chennai, India are reporting that compared to the number of customers from last week, the walk- ins have doubled this week.