Gold looks set to shoot back up to $2,000 per ounce in the near future, says Angelos Damaskos, the chief executive of Sector Investment Managers.
Although gold is currently in the eleventh year of a boom market, as much as 20 per cent has been wiped off the spot price more recently from the high of $1,921 recorded in early September, according to Damaskos, who is fund adviser to the junior mining fund.
Investors are scrambling to free up liquidity in the face of a constrained lending market and, in the face of sustained uncertainty, could well continue to do so in order to cover other liabilities, says Damaskos.
He says the volatility of the gold market is further emphasised by the spot price climbing from $1,500 to $1,900 within the three months prior to this.
A gold market where these extreme periods of volatility are predicted to become the rule rather than the exception as we are entering “uncharted territory”, he adds Damaskos.
The popularity of accessing gold through ETFs continues to gain traction among retail investors and contribute to this volatilty, according to Damaskos.
Fitch Ratings echoed this sentiment in a statement today, claiming that ETFs are “likely to have made the market more reactive to investor sentiment, making rapid moves more likely”.
Gold equities, particularly those of the mining sector, have underperformed the actual asset over the past six months, he explains, particularly as gold equities got caught up with the rest of the market in the recent sell-off.
“The discount on gold mining equities is currently at about $1,100 to $1,200 an ounce”, says Damaskos, which has lead to a significant price gap.
Upwards pressure on the gold market will come through the narrowing of this discrepancy, says the Sector Investment Management chief executive, especially as major European central banks are becoming net buyers of gold in an attempt to diversify asset holdings.
“The bull market for gold will continue for as long as there are economic problems,” says Damaskos. “A Greek default is unavoidable and the Eurozone is going to remain in turmoil for the time being.”