Investors want safe haven amid EU trouble

Gold prices will remain in a growth trend through the first quarter as the euro zone's economic problems linger, says a leading gold importer and trader.



"We still expect gold to be a safe haven for investors, hence gold's rebound to between US$1,950 and $2,000 by the first or second quarter," said Tipa Nawawattanasub, the chief executive of YLG International.

Gold prices have fluctuated since last year in line with a weakened US dollar, and gold has seen a general upward trend throughout 2011, peaking at $1,920 an ounce. By YLG's reckoning, gold will close the year at $1,500 to $1,700.

"The drop came because the price of gold is under pressure from uncertainty over the management of European public debt," said Ms Tipa.

"This is due mainly to credit rating agencies threatening to downgrade financial institutions across Europe, as they are major creditors of those countries in trouble as well as to the EU financial rescue fund itself."

Technically, the price of gold should follow the strength of the euro. When the euro depreciates, investors flock to the dollar, causing the greenback to strengthen and gold prices to fall.

But in the medium to long term, if the EU and US economies show no sign of recovery, then the price of gold will separate itself out and become an independent safe-haven asset.

Another leading gold trader, Nuttapong Hirunyasiri of the MTS Gold Mae Thongsuk Group, said despite the consistent high volatility, the overall graph shows an upward trend in gold prices, with a positive return of 10% for next year's first quarter.

Kritcharat Hirunyasiri, the president of MTS Gold, predicts a rise above $2,000 per ounce despite continued volatility.

"Factors next year that would influence a rebound in prices include an economic environment of high inflation with remaining low interest rates, compounded by problems posed by the European debt crisis and unemployment in the US," he said.

Dr Kritcharat suggested short-term investors follow the global situation closely, particularly the EU fiscal crisis.

Medium-and long-term investors are advised to allocate 40-50% of their investment portfolio to gold.

Demand for gold continues to be high in Asia, as central banks in many countries have become net buyers of gold, said Dr Kritcharat.

Gold investors can invest in a range of assets such as gold funds, gold futures and bullion. Futures and ETFs have gained popularity because they allow more flexibility in trading.

"Gold investors should know they will be investing in a period of high price volatility and so should have a well-grounded knowledge of fundamentals and technical determinants," Dr Kritcharat addedd.

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