Time to buy gold? Next dip could be investors’ best entry point, say analysts

A decline of five to ten per cent in gold prices offers a good entry opportunity for investors looking to capitalise on the ongoing rally, as the precious metal trades near record highs, analysts say.

Retail investors are advised to hold onto cash and enter the market during price dips.

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Gold recently reached an all-time high of $4,378.98 per ounce. On Monday morning, it was trading at $4,266.2 an ounce at 9 am UAE time, an increase of 0.39 per cent.

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Prices of precious metal in Dubai — known as City of Gold — also hit a record high as 24K surpassed Dh500 per gram for the first time.

“What are the probabilities of gold continuing to go up relative to going down, knowing that everyone's long positioning is very rich in gold now across all products? There are a lot of people who want to buy (gold) at any kind of weakness right now," said Chris Weston, head of research at Pepperstone.

"If I look at the checklist of reasons why gold has gotten to where it's, there's nothing really out there that suggests we're going to see a 20 to 30 per cent crash. There are reasons, but they’re very few. If I look at the checklist, if anything, any kind of pullback, a decent five to 10 per cent, based on positioning, will give everyone a strong entry point for another run higher,” he added.

Weston noted that one of the key drivers behind the gold rally is the continued accumulation of gold by central banks in China and other emerging markets.

“Global central banks have now taken gold as a percentage of reserves right from around 15 per cent a number of years ago to around 22-23 per cent now. That number just keeps going up and up,” he said, adding that there are multiple compelling reasons to hold gold.

Under-owned by institutions

Following a strong rally, Weston believes that institutions still under-own the yellow metal.      

“It's largely uncorrelated to a lot of other markets. So, unless the correlation with gold really picks up with equity and fixed income, then that lack of correlation still makes it very attractive for institutional investment managers. What we've seen is the start of a long-term trend amongst institutional investors. Whilst gold positioning is rich, it's still very much under-owned by institutional investors, so people are talking about this change of a 60-40 portfolio of 60 per cent equity and 40 per cent fixed income to now a 60-20-20 portfolio, where gold’s only 20 per cent so that's a huge amount of money still to come in,” Weston added.

He also advised retail investors to pay close attention to position sizing.

Afshin Setoudeh, chief marketing officer at Traze, said market conditions have favoured traders over the past 18 months but warned against complacency.

"You need to be cautious. There are corrections of $100-150, but you're not here just to 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.

Waheed Abbas

waheedabbas@khaleejtimes.com

Waheed Abbas is Assistant Editor, covering real estate, aviation and other business stories that directly affect the lives of UAE consumers. He frequently reports human interest stories, too.