Gold should be part of a balanced portfolio


With the ongoing sovereign debt crisis in Europe, sluggish recovery in the US and more uncertainty over the state of the Chinese economy, the demand for gold will continue to hold strong, told Dubai Chronicle the Head of Precious Metals at Emirates NBD.

Addressing senior officials and traders from NASDAQ Dubai, the Dubai Financial Market (DFM), Abu Dhabi Securities Exchange (ADX) and the Dubai Gold and Commodities Exchange (DGCX), Gerhard Schubert highlighted the macroeconomic factors that, combined with consumer behaviour, drive demand for gold.

Addressing the gathering of industry professionals at the “Diversification opportunities in gold” seminar held at Dubai Financial Market, Schubert said that gold is no longer just a safe-haven commodity.

“With the underlying political and economic uncertainty, gold’s role as an asset class and a means of portfolio diversification is growing. Mistrust for Fiat currencies is also a global reality that makes gold a good currency surrogate,” he said. “With disposable incomes in emerging markets on the rise, central banks, sovereign wealth funds, pension funds and individual investors are now drawn to gold as an attractive investment choice.”

Dismissing any notion of a gold bubble, he went on to say, “Gold investments are not limited to speculation as the asset class is invested across segments. For example, central banks have turned into net buyers, driven by political decisions rather than price.”

Schubert went on to highlight that even over the past two decades gold prices, relative to treasuries, have steadily risen. “Gold has always been regarded as a safeguard against inflation, political turmoil and economic crisis. That is why in today’s scenario our outlook for the precious metal remains bullish.”

Sounding a cautious note, he said that the investment community needs to be mindful of events as they unfold in the second half of 2012, the results of next year’s US presidential elections as well as a resolution of the European debt crisis is likely to influence consumer and investor demand for gold. In the short term however, he forecast that demand is likely to outpace supply.

“When it comes to portfolio diversification, this should be based on risk appetite, but we recommend 5-10 per cent of investor portfolios have exposure to gold,” he said. “It is a good insurance policy and hedge against global uncertainly and policy failure. It is also a good active strategy for investments and governments.”

There are a number of channels through which gold investments can be made. These include Physical Gold, Gold Futures, Exchange Traded Funds (ETFs) and Gold Certificates, each having their own unique characteristics.

“All the various channels available offer advantages to different customer segments,” said Schubert. “For semi-professional traders and experienced investors, we would recommend Futures as the most suitable option, since it is the fastest and most liquid instrument , requiring only a small initial investment to buy a large amount of underlying value,” he concluded.[mpoverlay][/mpoverlay]


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