Gold prices which rose by about 26% in 2009 has faced stiff resistance at US $1200 per ounce during January 2010. At that stage, prices corrected moderately as investor's risk appetite increased in response to gradual improvement in global economic conditions, according to an analysis by PSQ Analytics released to Commodity Online.
The outlook for precious metals remain positive over the medium term and bearish over the long term.The sharp rise in gold prices over prior months, set against the prospects for economic recovery over the coming quarters, have eroded gold's attractiveness for investors, pushing capital towards riskier assets such as equities. Meanwhile, unwinding of government stimulus measures and monetary easing have dulled gold's lustre as a hedge.
Certain monetary policy instruments have been tightened in major economies including the US, China and India, while governments and central banks in other territories (including the European Union and Japan) have also shown signs of considering liquidity tightening measures. PSQ Analytics said.
Gold prices have been trending higher for seven years now, but following their recent moderation, investor sentiment appears to be divided amid questions over the long term viability of gold's wealth protection role at high prices. While legendary commodity investor Jim Rogers expects gold prices to reach USD2,000 per oz, his erstwhile hedge fund partner George Soros now views gold as the 'ultimate bubble asset' (Source: The Telegraph, 28 January 2010). Investors also appear to be turning away from other precious metals, in favour of industrial metals. This trend has been particularly noticeable for silver, which has suffered from falling use in industrial applications
Transactions and developments
Transaction activity in the precious metals sector remained muted, with the notable exception of the USD435 mn IPO of Turkish gold miner Koza Altin Isletmeleri AS (Koza Altin), although even this offering disappointed investors with a lukewarm debut in the secondary market. However, capital raising activity is expected to gather pace in the latter half of 2010, with a number of mining majors, primarily from Russia, planning to spin off their gold mining operations.
Noteworthy examples include OOO Severstal, Russian oligarch Viktor Vekselberg's mining assets, diamond giant Alrosa Company Ltd. and GV Gold Ltd. In addition, the world's largest gold miner - Barrick Gold - plans to list its African gold mining subsidiary on the Main Market of the London Stock Exchange. Various small Chinese and Australian firms are also looking to raise capital in order to fund exploration activities, while some financial institutions like Sprott Physical Gold Trust intend to raise capital via an IPO in order to invest in gold bullions.
Authorities in emerging markets, particularly China and India, may continue to diversify their foreign exchange reserves, with gold set to gain from this capital reallocation. Other precious metals like silver, palladium and platinum will also benefit from the anticipated increase in gold prices. Given the significant correction in silver prices seen over the past quarter, set against the metal's still widespread usage in industrial processes, silver appears to be the most attractively priced of the precious metals, offering significant upside potential from current levels over the coming quarters.
However,PSQ analytics have reaffirmed its conclusions reached in its initiation report, that prices for gold and other precious metals have moved well ahead of their fundamentals and are set to decline once temporary demand from portfolio reallocation subsides, and particularly once central banks begin to hike interest rates in order to ease potential inflationary pressures.