A golden opportunity? Switzerland's love affair with gold shows little sign of abating. The metal's rapid price increase in 2009 encouraged Swiss finance to develop new physical gold products, creating a bandwagon of investment opportunities. Gold is the obvious safe haven during tough economic times, but financial advisers recommend maintaining a diversified range of investment classes.

Author:Broom, Giles

In December gold prices hit a new all-time high of US$1226 a troy ounce (around 31 grams) and the climb looks set to continue, according to market analyst Eliane Tanner of Credit Suisse. Analysts from UBS, the larger of Switzerland's two top banks, predicted in March last year a sustained increase in the price--a 'bull' market--which could reach US$2500 a troy ounce within the next five years.

But most of the experts writing for various financial pages have opposing views on future price movements. This can make investment decisions difficult.

Why the high price?

Simple supply and demand theory is one way we can analyse gold prices. Commodity movements follow the premise that supply must keep up with demand otherwise prices will increase. Patrick Pittaway, a gold portfolio manager for Uram in Geneva, told Swiss News that gold has recovered significantly since the recent low point of 1999. Pouring over commodity and equities charts--anchored with gold bar replica paperweights--he explained that mining has been in decline, meaning supply has failed to keep up with demand. Some of the current big buyers are the central banks of emerging market economies such as China and Argentina; in November, India bought 200 tonnes from IMF (International Monetary Fund) reserves. Pittaway, who comes from a mining and investment banking background, says miners are not making large discoveries and developed countries are no longer selling their reserves.

Two additional factors are fuelling price escalation: since 2007 many banks have collapsed or required massive injections of state funds to keep them afloat, UBS included. This chaos shocked people into buying gold bars, rather than rely on cash accounts--which depend on a bank's survival. Gold is also the traditional safe haven from inflation. Meanwhile, the US dollar's decline in 2009 turned people away from holding wealth in the greenback. The weakened US currency has itself contributed to gold price increases, as the metal's value is measured in dollars per troy ounce.

UBS head of commodity research, Dominic Schnider, told Swiss News that UBS has recommended buying into both gold and platinum. "Further US dollar weakness and higher inflation expectations for the US should keep prices in an uptrend," he added, predicting that both metals would reach US$1500 an ounce in 2010.

An autumn surge in jewellery demand has also sustained the upward trend in gold prices. The Indian festival of lights--Diwali--in...

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