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Time to take profits on gold, say experts

The precious metal could be entering bubble territory, after recent market scares caused its price to spike.

By Mark Smith, Reporter, FE Trustnet Follow
Wednesday August 31, 2011

Now could be the time to take profits on gold, says Cazenove’s Joe Le Jehan.

Growing concerns over major economies’ ability to manage their finances caused high volatility in global markets in August and a widespread flight to gold by central banks, institutions and private investors.

With the precious metal continuously reaching new record highs, investors are now beginning to question whether the rises are sustainable or if now is the time to take profits.

Le Jehan, an analyst on FE Alpha Manager Marcus Brookes’ multi-manager team, says Cazenove has had a good run in gold for three or four years, but there are signs that now may be a good time to take profits.

"We like the long-term story but there are so many reasons people are holding gold at the moment – whether as a hedge against inflation, as a safe-haven asset or as the least bad currency – that we’re concerned that pretty much everybody owns it," he said.

"Traditionally, gold tends to pull back by 5-to-10 per cent in that kind of environment and we’ve taken a per cent here or there and put a bit into cheaper equities."

The gold price has already risen nearly 50 per cent in the last 12 months and several high-profile managers such as BlackRock’s Evy Hambro and t1ps’ Tom Winnifrith believe that it is likely to breach the $2,500 an ounce mark.

Cazenove’s Robin Griffiths even remarked earlier in the year – albeit tongue-in-cheek – that the price could in theory go up to $10,000 an ounce or more.

Performance of index over 3-yrs


Source: FE Analytics

However, industry analysts and financial advisers alike are now saying that gold could suffer a sell-off in the way silver did earlier in the year when many investors lost 20 per cent almost overnight.

Patrick Connolly, head of research at AWD Chase de Vere, is just one industry professional who believes that gold could be beginning to enter treacherous bubble territory.

"We’ve been nervous about the price of gold for some time and it cannot keep on rising forever. The state of the economy has been responsible for the impressive run but as we see things start to improve then the price will come down."

Since its high of $1,913 on 22 August the price has fallen 4.3 per cent to $1,832 today as the FTSE continues to climb.

"If you are invested in gold you have to be aware that something that has risen so sharply could fall just as sharply. We’ve been limiting the amount we advise our clients to hold and where we think exposure is too high we’ve been advising that now is a good time to take profits."

Despite the warnings, many investors still view gold as a safe haven. In the latest FE Trustnet poll, 70 per cent of respondents said that in one year's time the gold price will be either higher or in roughly the same position as it is now.
Source: FE Trustnet

There are also plenty of fund managers who are maintaining their gold exposure, including star manager Robin Hepworth.

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Peter Taylor Sep 01st, 2011 at 04:03 PM

Globally finances are still in a very parlous state for numerous reasons and especially in the USA, this is no time to sell gold but to invest even more


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