Introduction to Gold Prices
A five to 10 percent drop in gold prices provides a good entry point for investors looking to capitalize on the ongoing rally as the precious metal trades near record highs, analysts say. Retail investors are advised to keep cash and enter the market when prices fall.
Current Gold Prices
Gold recently hit an all-time high of $4,378.98 per ounce. On Monday morning, the price was at $4,266.2 an ounce, up 0.39 percent. Precious metal prices in Dubai also hit a record high as Dh24,000 surpassed Dh500 per gram for the first time.
Probability of Gold Continuing to Rise
"What is the probability of gold continuing to rise versus a decline, knowing that everyone’s long positioning is now very rich in gold across all products? There are a lot of people who want to buy gold on any kind of weakness right now," said Chris Weston, head of research. “When I look at the checklist of reasons why gold got to where it is, there’s nothing out there that really suggests we’re going to see a 20 to 30 percent crash.
Drivers of the Gold Rally
One of the main drivers of the gold rally is the continued accumulation of gold by central banks in China and other emerging markets. "Global central banks have now increased gold’s share of reserves from around 15 percent a few years ago to around 22 to 23 percent. This number continues to rise," he said, adding that there are several compelling reasons to hold gold.
Too Little Ownership by Institutions
After a strong rally, Weston believes institutions are still undervaluing the yellow metal. "It is largely uncorrelated to many other markets. So unless the correlation between gold and stocks and fixed income is really increasing, that lack of correlation is still very attractive to institutional investment managers. What we have seen is the start of a long-term trend among institutional investors. While gold positioning is rich, it is still very undervalued among institutional investors, that’s why people talk about this 60 to 40 change.”
Advice for Retail Investors
He also recommended that retail investors pay close attention to position size. Afshin Setoudeh, chief marketing officer, said market conditions had favored traders over the past 18 months but warned against complacency. "You have to be careful. There are $100 to $150 corrections, but you’re not here to just jump in – you’re here to trade strategically. Learn from the market, apply what you’ve learned and ride the wave. Don’t hesitate, but don’t act impulsively either," he said.
