Gold and Silver: Are They Good Investment (Part- 1)
By Saghir Aslam
Rawalpindi, Pakistan
(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live in security and dignity and fulfill their religious and moral obligations towards charitable activities)
Gold recovered the $1,300 a troy ounce level as investors digested last week’s dovish signals from the US Federal Reserves. But it failed to rally further as it met with continued liquidation of exchange traded funds. The yellow metal rose above the technical resistance level of $1,300 on comments the previous week by Chairman that tapering of quantitative easing would not be without firm signs of commercial improvement.
Physical demand provided some support but many investors remained wary of pushing the gold price higher and the precious metal was trading higher. Analysis said the yellow metal was also held back by continuing liquidations of ETFs. “Aside from the modest inflow of half a tone the first daily inflow since mid-June, holdings have continued to trickle lower.”
Chinese demand for gold jewelery and coins remained firm providing underlying support. Data from China this week pointed to record volumes of gold jewelry sales in the first half of the year. Physical demand provided support but many investors remained wary of pushing gold higher.
Meanwhile, the World Gold Council, the lobby group for the gold industry, said buyers of gold this year, were ahead of India for the first time. China is expected to purchase 950 t0 1,000 tons while India is expected to buy 850 tons. Gold’s sharp fall last year continued to claim victims, with, the biggest gold miner, this week announcing a $2bn write-down on its Mexican projects global mining sector. The write-downs could exceed $20bn over the current reporting period, according to analysis, and several companies, including Barrick Gold, have warned investors to expect multibillion dollar impairment.
A report from Goldman Sachs failed to provide much comfort to miners hoping for a rebound in the gold price. The Wall Street bank said it expected the precious metal to remain range bound, trading at about $1,300 a troy ounce for some time. Goldman maintained its average price forecast at $1,413 a tory ounce and said price would continue to fall, declining to $1,050 by year-end 2020.
An improving US economy and “a less accommodative monetary policy stance” would push gold lower. It said, Haven asset isn’t gold. Gold bugs are exultant. When the federal reserve Chairman said that the US central bank might start winding down its bond–buying program later this year, it has perked up again hitting a one-month high.
But hang on a minute. Isn’t gold posed to be a hedge? It goes up, or at least holds firm, when everything else takes a tumble. Its recent price action suggests it’s just a speculative commodity like any other. Just like the S&P 500 index, which has hit new all-time highs? You could argue that gold’s finest hour will come only when there’s a real crisis. When fairy take monetary policy ends, it will unleash a firestorm of inflation that shakes the world’s monetary system to its core. That will be the time to own gold and everyone will want it. Maybe but the meantime, the heaven asset per excellence seems to be the very antithesis of gold. It’s the paper money standing on a stack of debt and myriad unfunded spending pledges, the one backed by a central bank whose balance sheet has ballooned since the financial crisis began. It’s the dollar through the Lehman collapse the Japanese tsunami various iterations of the euro zone crisis and the recent mini-route in emerging markets, the dollar index (mearsing the us currency‘s value against a basket of other currencies) has either declined slightly, or strengthened. When the world looks a dangerous place, the better the devil you know – and know you can sell.
The dollar isn’t the world’s only heaven currency the Swiss franc fulfils a small function as, until recently did the yen. But the Japanese currency has weakened as a result of the new prime minister’s reflation policies, while the Swiss center bank has said it will step in to stop the franc becoming too strong. It seems only a matter of time before a more unconventional monetary policy is launched in the UK and Europe. That leaves the greenback as the world’s reserve currency.
(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)
