As reported last week, gold has fallen below $1,200 an ounce for the first time in nearly three years. The precious metal is on track to have its worst quarter since at least 1968, so should we be worried?
It wasn’t so long ago that gold seemingly barely got a mention in asset allocation terms; then came the financial crisis, the collapse of once reputable financial institutions and the inflation hedge became the number one choice safe haven. It’s notable then that as markets stumble again, gold is back in the headlines.
Earlier this month – when gold was at around $1,400 per ounce – Argonaut’s CIO Barry Norris described it as “this generation’s asset bubble”, trading as it was at nearly six times its inflation-adjusted fundamental value of $240 per ounce.
Greg Bennett, Norris’ co-manager on the European Alpha and European Absolute Return funds, is just as scathing today pointing out that the mining industry has seen significant cost escalation over the past decade.
“With Gold having fallen $200 an ounce in just a few weeks there will be those who believe that this is a buying opportunity, but we disagree,” he says.
“We are similarly sceptical of gold mining equity where we see significant bankruptcies and mothballing of capacity ahead. This curtailing of capacity in contrast to other commodities will not prevent further falls in the gold price, where we see another $1,000 an ounce downside before gold starts to offer fundamental value.”
On the other side of the net, Angelos Damaskos, CEO of Sector Investment Managers, hits back at the idea that gold is overvalued.
“Gold traded at $250 an ounce in 2000. In the next eight years the global economy grew at rapid rates, most asset classes and all commodity prices rose dramatically thus not justifying holding a safe-haven asset such as gold,” he notes.
“Gold’s price, nevertheless, rose to $900 an ounce at the beginning of the financial crisis in 2008. The notion, therefore, that gold is now overvalued given that, according to the Federal Reserve Chairman, the global economy is stable, even if it is not expected to grow at its long-run sustainable rate for long time, is deeply flawed.”
Who gets the trophy? I guess it goes to those who sold out of gold at its peak in 2011 when it was at more than $1,900 per ounce.
What’s your view? Do you still hold gold in your portfolios, and is this price weakness a buying opportunity given the global economic threats ahead? Let us know.
P.S. Turns out the Wimbledon Men’s trophy is actually silver gilt, not gold!
