With gold prices tracking towards US$1,600 an ounce this week, Junaid Anwar Khan, the head of trading for the National Bank of Fujairah's treasury department, says the precious metal should be a part of a diversified portfolio.
However, he does not believe gold will hit that magical $2,000 mark any time soon.
Why invest in gold?
From the perspective of investment, there have been two categories of people who always look towards gold. One is a group who would be buying gold from a traditional and cultural perspective; this would be a large portion of people living in Asia because, for them, gold and silver had been the two modes of currency even before the introduction of money. So in their cases, investment in gold would be like an investment done for a rainy day. This continues to be the case today. So, although those countries and cultures have progressed in many different facets over time, this particular facet of their culture hasn't changed.
What is better: physical gold, shares, or investment funds?
For the common person, the easiest mode to invest in would be physical ownership. For example, a person would go down to the jewellery store or to an institution that's in the business of selling physical gold and buy gold from them. The most sophisticated people would go for other alternatives. One would be to own certificates that give you ownership towards gold at the time of redemption.
Is silver another precious metal worth investing in?
In my opinion, I would not be investing in silver. The argument that some people have for buying silver is that it's like a cheap counterpart towards gold. If gold plummets, then silver tends to plummet and vice versa. So those who find gold a bit more expensive have tried to follow the trend by investing in silver. It's not very prudent because silver has been a lot more volatile than gold.
How important is it to have gold in your investment portfolio?
With the scenario that's unfolding on the credit front, it's vital to have all forms of diversification. One particular model of diversification is investing in commodities. Now, within commodities, the one that has come under the most spotlight has been gold in the past 10 years. It's one item that has weathered the storm much better than the rest of the classes, so that's where the case for investing in gold has been strong.
Why is gold considered a haven?
If you look at the performance of gold since 1973 until this date, when the world economy had phases of stable growth and moderate inflation, gold's performance was not at all very good. In fact, gold was not on the investment radar until the turn of the millennium. You saw gold started to come into favour with clients and at the same time, you had some new geopolitical events happening on the horizon. Gold's treatment has been as that of a currency for thousands of years and it will continue to be that way. But a safe-haven? I wouldn't use that term for gold. Gold isn't a safe-haven investment. This is because a safe haven investment should be the one investment that when everything is going wrong, it does what you need it to do.
How high can gold go?
The trend in gold is still intact. The global liquidity concerns are riding very high on the minds of investors. So then you have higher concern for liquidity and, in such an environment, the dollar has actually benefited more than gold. You'll find that if people fear there's going to be a credit event, for instance, a default of a nation or institution, they would tend to run towards liquidity, meaning they would seek the protection of the dollar as opposed to gold. High gold prices this year, yes, but the figure of $1,900 or $2,000 or even higher is subject to what happens in Europe and whether, as a result of those events, gold is able to decouple from those events.
