Morgan, the pension and investments analyst, said investors would need to be patient, with the tide not turning any time soon, but said the commodity still held a role in a portfolio.
While the ‘safe haven’ status of gold has been tarnished, as a relative insurance policy against financial pain, it still held weight.
In spite of QE, the market’s fears over higher inflation appear to have been unfounded, reducing the need for such a widespread inflation dampener.
“Inflation has remained muted – some still believe deflation is the greater concern – and much of the printed money has simply ended up recapitalising banks rather than entering the real economy. Owning gold as an inflation hedge has seemed unwarranted,” Morgan said.
He added that gold was a crisis trade, and therefore in a time of greater confidence over the economic recovery, it was not the asset to own in such circumstances.
“However, I believe its time will come again, and it could provide useful diversification in a portfolio or even act as a hedge to bonds and mainstream equities,” he said.
Physical gold has fallen roughly 30% over the last two years and the HSBC Global Gold Index of major gold miners is down more than 60% over the same period, meanwhile management issues have plagued mining companies, he explained.
“When the gold price was higher firms focused too much on new mine development and acquisition, with cost control a secondary objective. Now they are looking to become more disciplined, focusing on more profitable mines and cutting costs,” he said.
If gold prices continued to fall, there was little miners could do expect sit tight and wait for a recovery, Morgan said, as sentiment continued to sit against the precious metal.
“Gold is much cheaper than it was and production looks to be in decline; outside China at least, which tends to consume all it produces anyway. With some gold miners shutting down mines or even going out of business there could be a gold shortage in the future, which might eventually drive prices higher.
“On the corporate front too we could be entering a more constructive phase where well-managed miners add shareholder value through better capital allocation. However, this takes time and cannot be expected to yield results overnight,” he concluded.
