The gold price is expected to continue falling to as low as $1 200/oz over the next year, after what seemed to be an unstoppable climb over the past 12 years, says investment company Rezco Asset Management investment director Rob Spanjaard.
He adds that Rezco attributes the drop in price mainly to a large number of exchange-traded funds being liquidated.
“The primary problem is that there was speculative money in gold, which is currently being withdrawn. As soon as the gold price stops rising, speculative investors start changing their minds.
“In this sense, when the gold price stopped rising, it was a warning sign of potential prob-lems to come,” he says.
In addition, the environment for gold, with central banks printing trillions of dollars, also added to the problem, he says. “If the gold price is no longer rising in that environment, it could, really, only fall.”
Spanjaard believes that the gold price will stay low for a couple of years, as gold that was accumulated for speculative purposes has to find its way into “strong hands” again.
“Also, the gold price has been climbing for more than ten years and experience in investment markets shows that no commodity will continue to climb indefinitely.”
Meanwhile, he advises individual investors to wait a while longer before buying gold.
“You have to look at where the gold price started – at $250/oz in 2001, from where it climbed to almost $1 900/oz in 2011. While gold currently feels cheap, compared with those highs, one has to remember the price from which it started.
“If you look at the price drop in perspective, it is not that severe and could fall even more,” he explains.
Therefore, potential investors should wait for the price to settle down and the investment cycle to turn.
While gold has previously been regarded as a safe haven for investors, Spanjaard states that a diversified portfolio would currently be the safest option.
“With gold climbing from $250 to $1 900, investors were confident that the price would continue to rise and it made them feel comfortable; however, this is probably when a commodity is at its most dangerous.
“Therefore, investors should rather invest in various commodities so that their portfolios are not too severely affected by a drop in price of a specific commodity, such as gold,” he concludes.