Gold price volatility likely to continue, say market watchers

Gold price volatility likely to continue, say market watchers
    By Yvonne Chan
    POSTED: 17 Apr 2013 10:37 PM
    UPDATED: 17 Apr 2013 10:55 PM

Gold rebounded slightly on Wednesday, after falling to a two-year low on Tuesday, However, market watchers said gold price volatility is likely to continue.

Gold jewellery being displayed at a jewellery tore in Singapore.

SINGAPORE: Gold rebounded slightly on Wednesday, after falling to a two-year low on Tuesday,

However, market watchers said gold price volatility is likely to continue.

Gold prices have suffered about 20 per cent losses since the beginning of the year, following uncertainty over the US Federal Reserve's stimulus programme and Cyprus' plan to sell bullion reserves to raise cash.

Speculation is rife that gold might continue to trade in the range of US$1,150 to US$1,500 -- off its peak of US$1,921 in 2011.

Retailers expect demand for gold jewellery to pick up in the coming months.

Charles Ho, managing director of On Cheong Jewellery, said: "Now, it's not a good season for gold buying, especially during Ching Ming.

"But it will pick up around the beginning of May, the wedding month, and I believe most Chinese couples will make use of this opportunity to start buying."

Given gold's recent fall from grace, there has been a bit of panic selling in the market. But as gold prices fall, gold jewellery becomes more attractive and experts say demand for gold jewellery will continue to be driven by Indian and Chinese customers.

The recent plunge has triggered interest in the trading of physical gold in Singapore, according to UOB -- the only bank offering gold savings accounts.

Ms Beh Hsia Wa, director of UOB Bullion and Futures, said: "Yesterday, we saw strong physical buying interest at the UOB main branch from retail customers. Buying interest continued today but was not as high as yesterday, despite a lower gold price.

"Wholesale physical customers, however, were not buying as much as they did when gold price was above US$1,500 last week. We suspect these investors are taking a wait-and-see approach."

But even if gold were to recover from its current lows over the next six to twelve months, analysts say it might be more prudent to protect against the downside with other precious metals.

Dominic Schnider, head of commodity research at UBS Wealth Management Research, said: "The sharp drop probably has damaged the reputation of gold and that means we'll see less investment demand and investment demand really pushes up the price of gold.

"One of our top calls have been platinum, since the beginning of the year. It's held up really well this year, only down three to four per cent year to date, considerably less than gold and I still think platinum will outperform, but trading below marginal production costs.

"So that gives you confidence that the downside in prices is floored. So with market in deficit, platinum has a better risk reward profile. You can buy this with ETF or normal standard vehicles. For those who can bear more risks, I would say palladium is a better choice. A market which is more in deficit than platinum but it comes with more volatility."

For now, the outlook on gold remains bearish, as the metal loses its lustre as a safe haven.

- CNA/ac

- wong chee tat :)