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Price of gold unlikely to rebound

03 June 2014

Angela Sharda investigates whether it should still have a role in portfolios

Read more: Gold

The price of gold has fallen by almost a third from its record high of nearly $1,900 an ounce in August 2011 to around $1,300. Market participants maintain that adding gold to a portfolio provides insurance against economic and financial shocks – but such volatility and price declines represent a risk of their own.

During times of financial downturn and economic uncertainty, investors typically increase their demand for gold due to its perceived safe-haven qualities. The flipside is that when the outlook becomes more positive, investors desert safe havens in search of returns.

The price is therefore determined by the same fear-versus-greed dynamic as paper assets, but with the price moving inversely.

A precious metals trader says: "The crowd will determine where we are at the end of 2014, price-wise. There is the potential for one more decent down leg before a resumption of the secular bull market that...