All that glisters is not a safe haven

PUBLISHED : Thursday, 06 October, 2011, 12:00am
UPDATED : Thursday, 06 October, 2011, 12:00am


Volatility is understandably a risk that makes investors think twice. The uncertainty of gold prices since record highs were reached early last month has many a potential buyer sitting on the fence and those thinking of selling wondering what to do. It is a problem that is especially vexing for mainland Chinese and Indians, who traditionally turn to the precious metal at this time of year. As the world's biggest buyers, they have every reason to be more cautious than most.

Gold has a reputation for being the safest of havens. An uncertain economic outlook, rising prices, low interest rates and a lack of investment instruments have prompted buyers to turn to it in droves. The price soared from US$800 an ounce in the global financial crisis to a record of US$1,920 on September 6. But Europe's deepening debt woes and economic troubles in the US have caused great volatility in a commodity better known for stability, leading to prices plunging to US$1,534 and moving erratically up and down since.

The developments have been worrying on the mainland, where the Golden Week holiday, when gold-buying is almost obligatory, is under way. There is similar concern in India, where sales surge during the important Diwali and Dhanteras festivals in the last week of this month and the wedding season that continues until December. Chinese and Indians are not only hesitant about buying, but shop owners are concerned about lost business. Then there are the world's investors who are counting on China and India to push prices up.

Short-term investments tend to be unpredictable. Those that are long-term tend to be relatively reliable and safe. Gold has had a status as something to be cherished and held on to. The unveiling in Beijing last week of China's first gold bullion vending machine says as much about the changed investment environment as how perceptions of the metal have shifted. Treating it once more as a commodity rather than an investment would take away much of the uncertainty.