Thursday, 13 February 2014

Focus on gold miners as gold glitters once again

Gold bugs have had a good start to 2014, unlike those invested in stock markets. While the FTSE 100 index has lost 1% over the year to date, in contrast gold futures have gained over 7% in US dollar terms. Billionaire hedge fund manager John Paulson’s Gold Fund gained some 18% over the month of January, according to Institutional Investor Alpha.

This rally should of course be put in the context of the substantial slide that the gold price has suffered since October 2012, when it sat close to $1800/ounce. Today, even after rising since December of last year, the gold price is still only $1292/oz (Figure 1). Were the gold price to continue to rise back to its October 2012 level, there could still be another 38% to gain!


Source: Bloomberg

Now that is easy to say; but what could the drivers be for a continued gold rally? And is there a better way to play this trend than simply through the yellow metal itself?

Uncertainty and Strong Chindian Demand Are Key Drivers

There are two key drivers that can be easily identified for gold; one is uncertainty in financial markets, and the second is the growth in demand for physical gold from Chinese and Indian consumers.

A final thought:Bear in mind that, since 1900, the gold price (London fixing) has actually beaten the US Dow Jones Industrial Average stock market index! 

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