While sentiment has been negative towards gold as markets assume the Fed is about to withdraw its liquidity measures, gold’s value as a safe haven is to remain intact until the numerous threats to the global financial system are resolved completely, according to Lombard Odier’s Joe Foster.
Foster, who runs the Lombard Odier World Gold Expertise fund, said that while the recent gold sell-off was more drastic than he had imagined, there are still numerous reasons why gold is worth holding on to.
Go deeper with GlobalData
Access deeper industry intelligence
Experience unmatched clarity with a single platform that combines unique data, AI, and human expertise.
"Once gold stabilises, probably around current levels, it could represent the buying opportunity of a lifetime. The unprecedented sell off was technically driven," said Foster
Since gold’s peak at approximately US$1,900 per ounce in September 2011, aggressive Central Bank easing has led investors to believe that financial risks are under control, said Odier. Given this ‘perceived’ path to normalisation, the risk of gold markets exhibiting weakness was expected in the first half of 2013, said Foster. However, he added, that a positive trend is forecasted for the second half of 2013.
Despite the magnitude of this sell-off and many industry commentators saying that it heralds the end of an extended bull market in the precious metal’s price, it not necessarily so, in Foster’s view.
However, the capitulation in the gold markets will take a little while to settle, according to Foster, and he also expects gold to "consolidate for a while with the potential for another down draft before we see a positive trend develop into the fall".
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalData"Further, high-cost gold companies could begin to cut capital and curtail operations at US$1400 per ounce, which could, fundamentally, also help establish a floor," he said.
Gold has worked during all previous rounds of quantitative easing and periods of balance sheet expansion, and according to Lombard Odier, the current expansion is "even more widespread and encompassing".
"This time, however, markets appear to believe in normalisation. Given this, we will need to wait to see how fiscal and monetary policy – and economic growth and health – unfold globally," said Foster.
