Gold Investment Report

Topics: Gold as an investment, Gold exchange-traded fund, Inflation Pages: 45 (11615 words) Published: July 10, 2011
Gold Investment Digest
First quarter 2011
April 2011

Overview Gold’s long-term supply and demand dynamics and several macro-economic factors ensured gold remained a soughtafter asset in Q1 2011. Following a consolidation in January, gold ended the quarter on a firm footing, returning 2.4% over the period. Price trends

The gold price rose by 2.4% during Q1 2011 to US$1,439.00/oz by 31 March, on the London PM fix. However, gold’s volatility continued to diminish, a testament to its measured price appreciation. Gold prices rose to 28-year highs in yen terms by the end of the quarter, despite a temporary currency spike in March in the wake of Japan’s crises. In other countries, gold returns were more modest and even negative, as the US dollar lost ground against multiple currencies. Read more…

Price trends Investment trends Market and economic influences Gold market trends Key data 02 06 12 18 24

Juan Carlos Artigas Johan Palmberg Eily Ong Louise Street Marcus Grubb Managing Director, Investment

Investment trends
Investor activity in the gold market during Q1 2011 differed by region. ETFs in the US and the UK experienced net redemptions on the back of year-end rebalancing and some profit-taking, while continental European and Indian investors increased allocations. Recent data shows a resumption of net inflows in the latter half of March and early part of April. Coin and bar purchases remained high, while activity in the futures and OTC markets was buoyant. Read more…

Market and economic influences
Investor sentiment improved in the first part of Q1 2011. However, continued geopolitical unrest likely slowed the normalisation of economic growth and also raised the potential for a significant slowdown. Inflation – especially from food and energy prices – remains a real concern for consumers around the world. These two influences also focused investor attention on gold’s unique attributes and its role as a store of value. Read more…

Gold market trends
Preliminary reports for Q1 2011 indicate healthy but mixed activity in the market, responding in part to changes in the gold price. Evidence suggests central banks continued their recent trend of limited sales and increasing purchases. In addition while mine production increased in 2010, recycling activity declined marginally as economic growth in emerging markets mitigated part of the effect of higher prices. Read more…

Price trends
The gold price continued its upward trend, rising during the first quarter of 2011 by 2.4% to finish the quarter at US$1,439/oz, on the London PM fix (the gold price referenced in the rest of the text will refer to the London PM fix). While gold’s performance seemed more modest relative to average gains of 6.2% per quarter over the past two years, its consistency and robust growth trend has contributed significantly to its ability to provide diversification, risk management and wealth preservation to an investor’s portfolio.

On average, gold prices increased by 1.4% to US$1,386.27/oz in Q1 2011 from US$1,366.78/oz in Q4 2010 (Chart 1). While gold experienced a price consolidation in the early part of the quarter, falling as low as US$1,319.00/oz on 29 January, it climbed to new record highs throughout March and continues to achieve new highs in April. More importantly, January’s price fall of 5.6% corresponded to not much over a one standard deviation move for a given month. The average monthly volatility has been 4.9% over the past ten years. Gold’s long-term supply and demand dynamics and a number of macro-economic factors ensured gold remained a sought-after asset. First, the US dollar weakened against major currencies, which in turn supported gold prices given gold’s negative correlation to the dollar. Second, comments by the Federal

Reserve that signalled an...
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