Gold remains a good hedge

As inflation continues to surge, investment in gold remains a good hedge for long-term investors.

Many experts say gold prices could climb to US$1,000 (Bt33,200) in the fourth quarter if oil prices surge further. However, investors should not expect to reap the kind of high returns that gold has delivered in the past few years. They may have to keep it longer to obtain a more satisfying return.

At present, the rising oil price is driving gold up, while a weakening US dollar appears to be reversing.

Tanasin Gleeblumjeak, chief trader at Ausiris, said the long-term trend of gold remained positive, because of high oil prices, which has spurred inflation. The wide fluctuation in dollar trading, a sign of nervousness in the market, is also helping gold.

But the magnitude of price gains for gold should now be lower than in previous years, because the US federal-fund rate is likely to go on an upward trend, he said. The Federal Reserve will not slash the rate like before, and that will ease pressure on gold to spike sharply.

"But there is a chance gold could reach $1,000 an ounce in the fourth quarter or next year's first quarter," said Tanasin.

Gold Traders Association of Thailand president Jitti Tangsith-pakdi agreed. He said gold prices could rise in the third or fourth quarter and may break its historical high of $1,034 recorded on March 17, and even touch $1,100.

"As a long-term investment, gold remains good, but investors may have to hold it for a long time," he said.

But Sukit Udomsirikul, head of research at Siam City Securities, predicted the gold price would not reach its former high of $1,000, the present major target, because the dollar was likely to appreciate from now on.

Gold has jumped rapidly over the past few years because the dollar has been depreciating 20-30 per cent at the same time. But the oil price is only one factor driving up gold prices, and it will fluctuate more in times of uncertainty.

"It's not too risky if investors buy gold at about $800," he said.

Saudi Arabia's oil minister reportedly told UN chief Ban Ki-moon that his country planned to raise output by 200,000 barrels a day from next month.

Before putting money into gold, investors are advised to ask themselves what strategies they wish to adopt.

Tanasin suggested long-term investors should buy gold at $860 an ounce, which was this year's average price, compared with the current price of $880 an ounce.

Speculators need another investment strategy, he said, with a spread of $35 to $40 between the floor price of $860 an ounce and ceiling price of $900 an ounce.

They must be more cautious about investing right now, because the market is highly volatile, which means short-term players could suffer a loss.

Tanasin said oil prices would not influence the gold price at this moment, but the volatility of the money market plays a big role on metal trading.

"The Fed and the European Central Bank are deciding whether to raise policy rates to combat surging inflation. Whoever takes action first, the market will take that side. The money market is currently volatile, causing gold to fluctuate, as well," he said.

Jitti said the gold was likely to fluctuate between $860 and $920 an ounce in the next few months, caused by funds' buying and selling the metal following several bouts of price swings.

Sukit said the short-term range for trading should be now be $850 to $930 amid rising oil prices

and speculative trading by hedge funds. The baht is also a key factor investors must consider before buying. The more it depreciates, the higher gold should rise.

"The weak baht has caused local gold price to increase between Bt700 and Bt800 in the past two months," Jitti said.