Joe Wickwire, research analyst and portfolio manager at Fidelity investments, presented some very grounded, reasonable arguments as to why one should buy gold at the LBMA Precious Metals Conference in Lima, Peru which concluded on Tuesday.
Fidelity Investments Logo
Fidelity Investments are a largely family owned mutual fund and financial services company. It is one of the largest mutual fund and financial services groups in the world. Founded in 1946, the company has since served North American investors. This year they were voted best investment company in an online broker review by Stockbroker.com. They have gradually moved up in the rankings from eighth place in 2011.
They currently manage a massive $2 trillion worth of assets. Gold is a diversification and makes up only a small proportion of their overall assets. Thus their pronouncements concerning gold can be regarded as independent.
"I believe that now is a good time to take advantage of the negative sentiment short-term trading sentiment", Wickwire said as reported by the Bullion Desk:
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Wickwire argues that, from an asset allocation standpoint, actual gold market fundamentals are not linked to transitory US stock market volatility or whether or not the dollar moves up or down against the euro or the yen. Those items can be the basis for short-term trading strategies but not for long-term portfolio construction.
“I believe that now is a good time to take advantage of negative short-term trading sentiment,” Wickwire said.
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He emphasised that, while precious metals may respond to market volatility in the short term, in the longer term the fundamentals are sound.
As many as 40% of mining companies cannot turn a profit with prices below $1250. We can extrapolate therefore that if prices do not rise from where they now languish ($1163) many mining companies will fold. This would lead to a supply crunch and consequent rising prices.
Mr. Wickwire reviewed the conditions behind the surge in gold price from 2001 - 2008 and concluded that similar dynamics are currently in operation.
"Today is quite similar - there are negative real interest rates, while countries are using currency as a policy tool to support nominal growth at the expense of real growth. And on top of that, supply from the gold industry is starting to come down."
He emphasised the importance of owning gold as a form of financial insurance and concluded
"It's important to remember that a little gold goes a long way. If you had 5-10% allocation in your portfolio from 2000 to 2010, you wouldn't have suffered a lost decade."
We agree that in the long term gold acts as a counterbalance to and a hedge against market volatility.
To fret over declines in price is to miss the point. Holding an allocation of physical gold as a proportion of one's portfolio ensures that, if and when faith in paper and digital assets declines and counterparty and systemic risk returns, one is hedged and ones wealth is protected. This is the whole point of owning gold bullion.
As always we advise owning gold in allocated gold accounts in vaults in the safest jurisdictions in the world such as Singapore and Switzerland.
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MARKET UPDATE
Today’s AM fix was USD 1,161.00, EUR 930.81 and GBP 736.26 per ounce.
Yesterday’s AM fix was USD 1,151.25, EUR 927.90 and GBP 726.43 per ounce.
Gold for immediate delivery lost 0.1% to $1,162.60/oz in late morning trade in London. It reached $1,132.16 last Friday, November 7, the lowest since April 2010.
Gold in U.S. Dollars - 10 Years (Thomson Reuters)
Futures trading volume was more than double the average for the past 100 days for this time of day, data compiled by Bloomberg show.
Global bullion demand declined 2.5% from a year earlier to 929.3 metric tons in the third quarter, the lowest since the last quarter of 2009, the London-based World Gold Council said in a report today. Jewelry consumption slipped 4%, while bar and coin purchases dropped 21%, it said.
Although questions are being asked about the Chinese demand data as it appears to only view Chinese demand through the rather narrow prism of Hong Kong exports to China. However, today China is importing huge volumes of gold bullion from all over the world and therefore deliveries on the Shanghai Gold Exchange are a much better benchmark of real Chinese demand.
Holdings in gold exchange traded funds fell 4 tons to 1,620 tons yesterday, remaining at the lowest in more than five years due to poor sentiment and weak hand selling.
Holdings in the world's largest gold backed exchange-traded fund, SPDR Gold Shares, fell 1.8 tonnes to 722.67 tonnes on Wednesday. This is the seventh straight day of declines.
Gold in GBP - YTD 2014 (Thomson Reuters)
A small amount of the ETF liquidations are by investors concerned about the return of the Eurozone debt crisis, geopolitical risk and systemic risk and opting for the safety of allocated and segregated gold bullion coins and bars.
Some support was offered by buying of physical gold bullion in China overnight, dealers told Reuters.
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