Has gold finally lost its shine?


By Anil Bhoyrul
  • Sunday, 17 March 2013 8:50 AM
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There is a rule of thumb when it comes to working out if the price of gold will go up or down. It sounds ridiculously easy — almost too easy to be true. It goes like this: when things are going well in the global economy, the price of gold goes down. When things go badly, the price of gold goes up.

It really is that simple. Except rather like the property bubble and crash in 2008, it does increasingly look like many of the smaller, take-a-punt and hope-for-the-best investors, have got this all horribly wrong again.

If you have followed the price of gold, which as I write this is $1,592 per ounce, you will know this is not a great time to be holding the yellow baby. In the past 30 days it has fallen 4.2 percent. Over six months it is down 8.84 percent, and showing a loss of 7.1 percent over the past year.

It gets worse: so far in 2013 the price has collapsed by 6 percent and is only 4 percent off being officially labelled a bear market.

Finding anyone to say anything positive is a challenge. Nomura has cut its 2013 forecast to $1,602, while Credit Suisse, Barclays and BNP Paribas are all revising their forecasts southwards. This is, according to Bloomberg data, the worst start to gold prices for a quarter of a century.

Going back to the rule of thumb, you won’t be surprised to hear that by and large (apart from some parts of Europe), global economies are picking up (at different paces). Interest rates in the US may actually rise soon, while in this region, stock markets can barely remember such good times.

The Dubai Financial Market is standing today at 1,938 points. Back in 2011 it was 1,301. Similar gains can be found elsewhere in the region. Predicting 4 percent GDP growth is seen as normal rather than exciting.

All of which points to the likely scenario of gold prices struggling to make any kind of recovery this year. Worse still, if they fall another 4  percent and this becomes a bear market, things could spiral badly out of control.

Who is going to be affected by all this? When not very long ago gold was crossing $1,900, there was no shortage of optimists suggesting it would go all the way to $3,000. All that reminded me of Dubai’s property market in 2007. High prices that can only go higher. Thousands of so-called small-time investors have in the past two years jumped into gold investments. Particularly here in Dubai, I know of countless people hoarding several thousand dollars worth of gold bars under their bed. Most have lost a fair bit of their investment already and the short-to-medium-term prospects look pretty bleak.

Once again, the small boys have been caught out. The big boys have been selling big time — billionaire investor George Soros has cut his holding in gold by 55 percent. According to Bloomberg, investors sold 106.2 metric tonnes of gold in February, worth $5.46bn.

In other words, if you were thinking of getting out of gold, you have probably missed the boat. In this week’s magazine we feature an interview with LGT Group chief executive Prince Max von und zu Liechtenstein, one of the smartest men in business anywhere on the planet. I asked him whether he would, at the current price, invest in gold.

He told me: “The experts in our house always recommend gold more than me. I just find it a very difficult asset to assess and if an asset doesn’t have predictable cash flows, for someone like me with a very traditional approach, it makes it very tricky.”

He is right. Gold appears to have finally lost its shine.

Anil Bhoyrul is the Editorial Director of Arabian Business.

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Posted by: Steven Wednesday, 20 March 2013 3:39 PM[UAE] - Belgium

You really have no idea what you are talking about!
You start of wrong already : gold is not only a safe haven.(in bad times)
It is a store of value. A lot more than any fiat currency is.
Given the monetary policy of the Central banks(QE), this can only be positive for gold on the long term.

Question : Why, now after sooo many years, does Germany, Mexico, Venezuela,... repatriate their gold holdings from overseas? They must have a different vision...

Question : If the price of gold is doomed to go down, as you describe, why do the Chinese buy loads of the precious metal, on top of their own mining business? They actually prefer gold over the Dollar?(reserve currency?)

In other words, patience, and we will see in a couple of years if you were right...

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Posted by: Samara Pope Wednesday, 20 March 2013 9:09 AM[UAE] - Dubai

About 10 years ago, 2003, price of 100 grams gold bar approx Dhs.8000/-

Today, 10 years later, 2013, price of 100 grams gold bar 19,000/-

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Posted by: Freddy Tuesday, 19 March 2013 7:53 PM[UAE] - Belgium

Yeah right... Wait and see.
Gold market is rigged by JP Morgan, Western central banks are selling gold to hold down the price so currency devaluation remains "invisible" and the paper gold market is a big ponzi scheme about to collapse...
In the mean time Central banks all over the world (except the dumb Fed and ECB and BOJ) are stacking up on gold in HUGE quantities every month.... Guess they know more than the writer of this article and many people realize.

In the mean time, I am very happy with this price of gold and silver, as it is a buying OPPORTUNITY for worse times to come.
We talk again when all paper fiat currencies collapse..

Oh, and I am very bullish on taking the following bet with anyone : you put aside a certain amount of PAPER money and I put aside the same value in gold and silver.
Then every year we will check who can get the most in the supermarket, at gasoline stations etc...
In the end, we will then see who goes first to ZERO.

So I am happy if you keep your paper money, in the mean time I will keep my gold and silver :)

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Posted by: CoastalTrader Monday, 18 March 2013 9:24 AM[UAE] - Canada

What will really determine the price of gold is China. Yes global economics are a big factor, but you interpret them incorrectly.

China is on a path to accumulate global resources (energy, base metals & gold) and dump US$. The US & EU are printing fiat $ at an unsustainable rate and buying their own debt. A path of self destruction. Interest rates cannot go up much because central banks control that decision and higher rates would bankrupt nations even quicker than current policies and cause hyper-inflation.

So China accumulates gold as part of their strategy to become the worlds reserve currency. To assist that agenda gold prices must rise. Gold is also now a Tier I asset - so higher prices will help the bottom line of hundreds of international banks.

Regardless of the short term machinations of the PoG - the trend is in place and correcsponds with China's goal of Global Economic Dominance.

A Dibai taxi driver with a couple of goldbars under his bed is irrelevant.

Posted by: procan Monday, 18 March 2013 2:53 PM[UAE] - canada

No worries trader as you know we have plenty in the ground here : )

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Posted by: Telcoguy Sunday, 17 March 2013 9:06 PM[UAE] - UAE

"in this region"? You make it sound like a regional disease when it is actually a pandemic

More unbelievable is the fact that people still gives credibility to this kind estimates

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