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  • Dec 18, 2014
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Gold price seen as still high despite big fall

Singapore government investment chief says it is difficult to justify the current value of the metal given its limited practical usage

PUBLISHED : Tuesday, 21 May, 2013, 3:33pm
UPDATED : Wednesday, 22 May, 2013, 4:36am

While falling gold prices have sent a flood of Chinese housewives to Causeway Bay jewellery shops to hunt for bargains, Singapore's top investment official has warned that the precious metal still looks overpriced.

Lim Chow Kiat, the chief investment officer of the Government of Singapore Investment Corp, told a forum yesterday that it was difficult to justify gold prices given its relatively limited practical use.

"I think gold is a very difficult asset class because the usage of gold for industrial or consumer products doesn't quite justify the prices," said Lim, the top investment decision-maker at GIC.

GIC is one of the world's largest sovereign wealth funds, with US$247.5 billion under management, according to the Sovereign Wealth Fund Institute.

Lim's comments were made against the backdrop of a slumping gold price.

The precious metal has tumbled 17 per cent this year, amid rumours that some central banks planned to unload some of their holdings, but the falls encouraged more retail buying in Asia in recent weeks.

Spot gold yesterday was trading within striking distance of the two-year low of US$1,321.35 per ounce touched on April 16.

Taking advantage of the steepest drop in three decades, many Chinese consumers, typically mothers and housewives, have splashed out on gold for their daughters' weddings in recent weeks.

Some came to Hong Kong to shop for gold, depleting jewellers' stocks in the process.

Hong Kong's Secretary for Financial Services and the Treasury, Chan Ka-keung, said earlier this month that many shops were running out of the precious metal for the first time in decades.

Despite the falling gold price, Lim - who landed the top GIC investment job in January - remains bearish on the metal.

"Many investors are looking at gold as a hedge against some sort of inflation or as a hedge against financial system collapse," he told the CFA Institute's annual conference in Singapore.

"I think diversification is important. At a certain level, gold can be useful as a hedge.

"But typically the prices [of gold] are very high, so you have to be very careful about paying high prices for it."

Billionaire investors George Soros, who was a bear on gold, and Louis Bacon cut their stakes in exchange-traded products backed by gold earlier this year.

But influential hedge fund manager John Paulson, who made US$15 billion for investors in 2007 by betting against subprime mortgages before the housing collapse, has so far maintained his holding.

Bloomberg reported last week that Paulson's Gold Fund had lost 47 per cent in the first four months. Last month, the month during which the metal had its biggest two-day decline since January 1980.

Mainland gold imports including scrap from Hong Kong rose to a record 223,519kg in March, more than double the amount in February.


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This article is now closed to comments

Oh no, this must be wrong. I just read that the Secretary General of the Office of the National Economic Social Development Board of Thailand said just yesterday that the decline in the gold price is only temporary. This is because, Mr. Arkom Tempitayapaisit explained, gold is a speculative commodity so it would be difficult for the price to go down.
John Manfred
If you look historically, Mr. Paulson sold his short position in leveraged derivatives involving US subprime mortgages in early 2006. For a considerable amount of time, his subprime housing positions were much deeper in the red than his gold positions are now. Yet, in the end, when the crash & burn finally happened, he made $15 billion. That ought to tell the naysayers something.
But, another thing ought to be considered. George Soros may have sold 12% of his total position in GLD, the gold bullion ETF. BUT, his 13F report shows that, at the same time period, he bought $40 million worth of the Market Vectors Gold Miner ETF, which is a highly leveraged play on the upward price of gold. He also bought $25 million worth of CALL OPTIONS on the Market Vectors Gold Junior Miner ETF. The Juniors are typically extraordinarily sensitive to falling gold prices. Just buying that ETF, itself, represents a highly leveraged bet in favor of higher gold prices. But, Soros picked the idea of buying calls, which are approximately 100 to 1 leveraged to the ETF itself!!! Can there possibly be a move that is more bullish on gold's upward price movement?????


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