"Investors are very wary about the uncertain economic background and are choosing to back gold via ETFs," said Martin Arnold, senior analyst at ETF Securities. "The market volatility we’re seeing is unlikely to go away before the end of the year and people are looking for assets that can buffer portfolios in the event of any risk asset decline. The situation is similar to the crisis of 2008."
According to the latest FE Trustnet poll, the majority of investors believe the gold price will be higher than current levels when the year ends, with 16 per cent of the 525 respondents saying they think it will be significantly higher.
Source: Trustnet.com
Tom Winnifrith, manager of the SF t1ps Smaller Companies Gold fund, thinks the price has the potential to rise to $2,000 a troy ounce in the remaining six weeks of 2011.
"Everything is running in gold’s favour right now," he said. "The world’s key paper currencies all have their own issues. Everybody seems to have forgotten about the US. Their debt to GDP ratio is horrific. In many ways Italy is a safer place for your money than the US."
"The euro’s problems are well documented and Germany will soon authorise the printing of money despite what Angela Merkel says. Britain and the US are already carrying out quantitative easing which is weakening the value of the pound and dollar. On top of that you also have the potential for black swan events in the Middle East, which will be positive for gold investors."
According to data from FE Analytics, the price of gold has risen 27.97 per cent over the last 12 months in what has been a turbulent year for all other types of investment. Just one fund in the IMA universe, Legg Mason Japan Equity, has returned more than the precious metal in the past year.
Investors who are interested in accessing gold via a collective could invest in a specialist fund such as BlackRock Gold & General or gain direct access via an exchange traded fund such as ETFS Gold.
Performance of indices vs fund over 1-yr
Source: FE Analytics
Trading platforms Comex and CME have grabbed headlines this year for carrying out a series of margin hikes, raising the cost of trading in the precious metal.
"The powers that be will do everything at their disposal to stop the rise of gold," said Winnifrith. "But the gold price has already marched higher in spite of margin hikes. That is a sign of its resilience."
The 12 per cent of investors who believe the gold price will be lower come the end of the year may be hoping for a resolution of the eurozone crisis.
However, Arnold says that policy meetings are likely to give strength to gold rather than rein it in.
"A satisfactory resolution to the eurozone crisis could halt the progress of gold but that is simply not going to happen in the coming weeks," he said. "We’re seeing some agreement on the policy that’s needed but it could take years to get debt levels across the continent back to sensible levels."