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Wednesday 1 October 2014

Irish investors rocked by plunge in gold price as euro crisis eases

Published 09/01/2014 | 02:30

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There has been a plunge in the price of gold

THE price of gold has crashed, in a move that has left thousands of investors in this country nursing heavy losses.

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Large numbers of Irish investors bought gold over the past four years as a hedge against the euro breaking up and fears inflation would take off in the eurozone.

The metal was seen as a safe-haven investment in the event that Ireland was forced to leave the euro.

But instead, falling prices have become an issue for the countries that share the euro currency, while the euro is seen as having emerged from the crisis that threatened its survival.

The price of an ounce of gold has now fallen to $1,241 -- a drop of close to 40pc since the price peaked in September 2011.

Bullion had hit a high of $1,921 an ounce before it crashed in value.

COLLAPSED

Last year alone, gold tumbled 28pc.

The falls have been blamed on large numbers of investors losing faith in the metal as a store of value. Last month, the US Federal Reserve cut the pace of its monthly bond purchases.

Now some American analysts have predicted greater falls in the price of the precious metal.

It is poised to fall another 19pc to $1,000 an ounce, according to some experts.

This is in stark contrast to Societe Generale's global strategist Albert Edwards, who predicted that the price would hit $10,000 an ounce.

Rory Gillen of Dublin-based Gillen Markets said it was very difficult to put a value on gold as it does not produce an income.

Financial experts can calculate the value of something based on the income it produces.

He said strong performance by stock markets and muted price rises meant the demand for gold had collapsed.

But he said the price may have bottomed out, and a likely re-emergence of inflation in the next two to three years could see the price of gold rise again.

Global investment strategist at Davy Stockbrokers Brian O'Reilly questioned the wisdom of this investment: "You have to question gold as an asset -- it has very little industrial use."

He added: "Our view is that prices did get ahead of themselves."

Davy cut its allocation of gold in its private clients' portfolio from 3pc to 1pc before the worst of the price collapse occurred.

Pat McCormack, head of wealth and investment management at Barclays Ireland said there was no reason to buy gold at the moment.

"Falling prices as monetary normalisation has loomed have not been surprising, and we see no compelling reason for adding to positions," he said.

Charlie Weston Personal Finance Editor

Irish Independent

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