Gold will continue to soar in a period of sluggish economic growth, as over the past 12 months the price per ounce has risen from US$1,400 (A$1,950) to US$2,075, according to boutique fund manager Datt Capital.
Emanuel Datt, Datt Capital managing director and chief investment officer (CIO), said there was several drivers behind this strong appreciation.
“Gold is an asset class that has survived the test of time in terms of storing value and acting as a ‘safe haven’,” Datt said.
“It is a durable, portable, and divisible asset that is limited in supply and high in demand for cosmetic and industrial purposes.
“The recent rise in demand, however, has been driven by a confluence of environmental factors, namely: uncertain geopolitical and social environment, record low-interest rates, negative real rates in major fixed income markets, and accommodative monetary policy.”
Because of the low interest rate environment, gold had become a far more attractive investment option.
“When interest rates are higher, for example at 5%, there is a real and tangible opportunity cost involved in holding non-yielding assets such as gold,” Datt said.
“Whereas the effect is diluted significantly in an environment where real rates of return are negative or zero.”
Datt cited Saracen, Newcrest and Evolution as the three Australian Securities Exchange (ASX) stocks which he considered investment grade.
“We believe that the gold price in the short-term will remain firm. This bodes well for Australian production assets especially in a world where we expect the US dollar to remain relatively strong,” Datt said.
“Another factor in play are gold ETFs [exchange traded funds] which are booming with retail investors.
“Professional investors are also taking a keen interest with more looking beyond investing in conventional money market instruments to allocate capital towards gold in a hunt for diversification.”
