Gold's uptrend to accelerate

During the recent turmoil in the stock & bond market, some investment managers talked about the advantages of investing in gold as safe haven asset. Looking at the 5-year chart of gold/USD, one would be pretty surprised by how well this safe haven asset has been performing in the past 5 years. In fact, gold is in a medium-term uptrend (5 years' timeframe), with support at USD665. In the intermediate term (1-2 years' timeframe), it has been consolidating its sharp price run-up from October 2005 to May 2006, when it hit a high of USD730 per troy oz. The consolidation pattern exhibited is the three fan lines pattern. On September 4, gold has broken above the third fan line at the USD680 level, which confirms this bullish setup and signaling the beginning of the next price run-up for gold.



Chart: Gold's 5-year weekly chart as at September 6 (courtesy of Bullionvault.com)

I do not wish to speculate on why gold is rising again. There are as many possible reasons as there are conspiracy theories on why gold should or should not be out-performing other assets. I believe that the buying of gold by central banks in order to diversify their reserves holding could be the main driver for the performance of gold. The buying could come from the Chinese central bank as well as central banks from the Middle East & other oil-producing countries (such as Russia), which are sitting uncomfortably on too much USD.

There are two ways of buying gold in Malaysia. You can buy them physically (such as gold coins) or invest via gold saving passbook. The latter method would dispense with the need to hold the physical gold but the mark-up by the selling institution would be higher. From Maybank2U, we can see that the mark-up for buying & selling of gold coin is about 3.33% while for investing in gold via the passbook is 7.87% (go here).