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Rise in gold prices won't last, say analysts

OCBC says the current spike in gold prices is due to investors seeking "safe havens", amid the turmoil in global stock markets. 

SINGAPORE: Gold prices may have risen 6 per cent since the start of this year, but most analysts do not see a glittering future. They said gold will at best stay around current levels, once markets stabilise and US interest rates rise again.

While gold prices do not move in tandem with stocks, the precious metal is every bit as volatile.

Those who bought gold in September 2011, for example, would have seen prices fall from a record US$1,921.15 per ounce to about US$1,060.42 at the end of 2015. That is a drop of more than 40 per cent.

Gold has since rebounded, climbing nearly 6 per cent to around US$1,125, as of Monday (Feb 1).

OCBC said the current spike in gold prices is due to investors seeking "safe havens", amid the turmoil in global stock markets. However, gold does not earn interest and investors will find it more costly to hold the precious metal as US interest rates rise.

"With a dearer greenback that we may see at the end of the year, this is actually the strongest driver that underpins a bearish field for gold prices,” said Mr Barnabas Gan, an economist at OCBC Bank.

“So in the short term, we can expect gold prices to rally even further, especially if risk aversion is felt in the global economy. But with the fed fund rates - if they are going to come as per how we expect - we do expect gold prices to fall in tandem."

OCBC predicts gold will fall to US$950 by the end of the year. It is one of the most bearish forecasters, but even the most bullish banks do not expect gold to rise much from current levels.

LACKLUSTRE GOLD SALES AHEAD OF CHINESE NEW YEAR

Gold's long-term weakness in the financial markets is also seen in the physical market, where sales have been lacklustre in the lead up to the Chinese New Year, a traditionally strong period.

The Singapore Jewellers Association blames the weak global economy.

“Right now in Singapore, because the market is rather mature, we are not like the Third World countries, where people still treat gold as an investment tool,” said Mr Charles Ho, president of the Singapore Jewellers Association. “In Singapore, I think the general consumer prefers to buy something trendy. So I would say that design is more important than the value of the gold.”

Mr Ho said that as more Singaporeans regard gold as fashion rather than an investment, demand looks set to remain subdued.