Could gold reach $3,000 an ounce?

Is gold the new property? Despite last year's slump the market is starting to look up again
Could gold reach $3,000 an ounce?
By Anil Bhoyrul
Sat 04 Feb 2012 06:52 PM

It was a strange experience. Chaos. Shouting. Screaming. Despair. And the bizarre sight of men, women and even children carrying heavy brown boxes into the backs of their cars.

I was in a well-known Dubai jeweller last week, contemplating buying my wife a Valentine’s Day gift. But I never got near the counter. Ahead of me, there were stacks of people, pushing and shoving, with only one thing on their mind: how many gold bars, how many trinkets, and how many items of jewellery they could walk away with.

Yes, it seems we are back here again. Groundhog Day. Last September, I wrote that gold was the new Dubai property – an industry in which everyone wants to get a piece of the action, even though they don’t really have a clue how it works.

And right now, I couldn’t be more right. In late September last year, gold was priced at an all-time record of $1,920 per ounce. Soon afterwards came the crash, as it plummeted 20% to just over $1,500 per ounce.

Needless to say, the “I told you so” crowd were out in force, warning that gold’s eleven-year rally had come to a spectacular end. If you still held the precious metal, you were either brave, a fool, or most likely a brave fool.

I suggested back then that gold could actually rise all the way to $3,000 an ounce. And I am sticking by that forecast again. Gold jumped nearly five percent last week, its fourth consecutive weekly gain, after the US Federal Reserve pledged to keep interest rates near zero until at least late 2014.

But late Tuesday last week, the price had climbed to $1,735 an ounce, with respected commentators such as Dominic Schneider, head of commodity research at UBS Wealth Management, suggesting it would break the $1,800 barrier by the end of the week.

So what exactly is going on? The general rule of thumb was that the worse things get in the economy – particularly with stock markets and currencies – the better it gets for commodities such as gold, which is seen as a safe haven.

That was certainly the case for the first nine months of 2011, as continued despair in equity markets saw investors chasing gold. But there comes a point in that equation when the balance shifts: when things are actually so bad in the markets, that investors need to sell their gold stocks to cover their losses elsewhere. Again, that happened in October last year as gold began its 20 per cent slide.

But we are now finding ourselves back at the equilibrium position once again. Most of the losses have been covered, and all the bad news from the Eurozone has been factored in.

In other words, here we go again: the worse it gets in the markets, the better it gets for gold.

The comments of John Ing, the Toronto-based boss of Maison Placements (who has a track record of getting it very right more often than very wrong) make sense to me – he is sticking his neck out and forecasting that gold will hit the $3,000 barrier by the end of this year. All the evidence thus far looks like he’s bang on the money.

And he makes one point of great significance, which is that 19 of the world’s Central Banks (including Russia) are now buying gold.

As I’ve written before, investing in gold is extremely risky and unless you really understand the game, stay away from it.

But looking at all the options right now, how big is the downside? A few unknown factors could bring gold back closer to $1,600. More likely it will carry on towards $2,000, and possibly upwards.

No stock anywhere else in the world looks as attractive right now.

Anil Bhoyrul is the Editorial Director of Arabian Business.

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