Make a Fortune in 2008 (III)

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Make a Fortune in 2008 (III) - Gold Market

2008-01-25 09:53:38 CRIENGLISH.com

The gold price reached a staggering 845.5 US dollars per ounce in the second half of 2007. [Photo: 21cn.com]

In 2007, as the investment market continued to prosper, the gold market experienced its sixth consecutive bullish year. In the second half of the year, the gold price reached a staggering 845.5 US dollars per ounce.

But should we invest in the gold market in 2008?

"Though the soaring gold prices in 2007 didn't break through the record 850 dollars per ounce which was set in 1980, the average price was expected to be 690 dollars per ounce, which was higher than the average price in 1980," Liu Shanen, a senior analyst from Beijing Gold Economic Research Center, said.

The rising price benefited gold investors much more than they had expected.

"Up to now, the return on investment ratio has been as high as 25 percent," said a man surnamed Li, who began trading gold in 2005.

Two years ago, the price of gold was merely 140 yuan per gram. But since November 2007, the gold prices reported by the Shanghai Gold Exchange often exceeded 200 yuan per gram.

"Many people are doing stock business now, but I'm always busy with my work and have no time to watch the market. Gold trading is like a long-term investment, which suits me well," Li said.

Although investing in gold isn't as profitable as investing in the stock market, it's much safer.

Last June, Li invested over 30,000 yuan in gold when the price hit 170 yuan per gram. In November, he sunk another 30,000 yuan into the market when the price reached 190 yuan. On December 28, the last trading day in 2007, gold closed on the Shanghai Gold Exchange at 193.69 yuan per gram.

The gold price was not always as stable as expected. After reaching a high at 845.5 US dollars on November 7, the price dropped sharply, then bounced back to around 800 US dollars. Many friends advised Li to sell the gold to avoid a possible loss, but the he ignored them.

"The advantage of investing in gold is that you needn't pay too much attention to short-term price fluctuations," he said.

Li hasn't sold off any of his gold stakes, and plans to hold his position over an extended period of time to stabilize his investment. He said that he is optimistic about the gold market's prospects in 2008, and plans to invest more money this year. Many of his friends, tiring of the upsets in the stock market, have decided to follow suit.

Until November 2007, profits from China's gold industry totaled nearly 12 billion yuan, up 114.4 percent from the same period of 2006. The Shanghai Gold Exchange launched its own gold futures on January 9, 2008 to give investors further options.

But the gold market is not immune to shake-ups.

One of the most important factors affecting the price of gold, the US dollar, began to weaken in 2001. The situation didn't improve in 2007. The U.S. sub-prime mortgage crisis struck major stock indices worldwide and hastened the dollar's decline against other currencies. The credit crisis triggered the capital market's desire to minimize risk, which actually helped drive up the gold price.

In 2007, oil rose to a record high of 98.62 US dollars per barrel on the same day gold peaked at 845.5 dollars per ounce.

"The rising oil price and falling dollar forced the capital to look for a way to avoid risks, which turned out to be gold," Xi Junyang, a professor at Shanghai University of Finance and Economics, said.

Statistics from the World Gold Council show that the demand for gold products in 2007 rose 30 percent over the same period in 2006. Meanwhile, investors replaced jewelry buyers as the force driving demand.

JP Morgan predicted that the average price for gold in 2008 will float at around 815 US dollars per ounce, with a top range near 900 dollars per ounce.

However, Jim O'Neil, the chief economist at Goldman Sachs, said that the gold price will drop 15 to 20 percent in 2008 as the dollar rebounds. He advised investors to sell their gold stakes.

Liu Shanen, a senior analyst from Beijing Gold Economic Research Center, said the U.S. economy will likely slow in 2008, keeping gold prices hovering at a higher level. However, Liu said predictions that the price will exceed 1,000 US dollars per ounce were unreliable.

According to Liu, although there is space for the gold price to increase, too many speculators entering the market have already pushed the price to a relatively high level. He reckoned that there are already bubbles in the market.

Professor Xi Junyang from the Shanghai University of Finance and Economics shared the same opinion. However, Xi was much positive regarding the market performance in 2008.

"Although the price may not rise sharply as it did in 2007, it will go high in 2008 in the long run," he said.

Translated from "Xinmin Weekly"

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