SG Wealth Builder

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Crazy year for gold price

It has been a crazy year for gold price! Towards the tail end of 2015, gold price dramatically fell to USD1054 per ounce upon the announcement of the interest rate increase by US Federal Reserves. Since the start of 2016, global investors were stunned when gold price surged to USD1350 per ounce within seven months.

The surge in gold price was due to the sudden crash in the China stock market which caught many by surprise. The massive sell-off in the stock market of the world no.2 economy triggered tremendous panic and caused many investors to flee for safety. As gold is traditionally seen as a safe haven for investments, gold price stormed to USD1237 per ounce. A majestic fine run indeed!

gold

Gold price was given further boost in mid-year as a result of the fall out from Brexit. As the epicenter of the event in London unfolded, gold climbed to USD1360 per ounce at one point. Government officials, analysts and economists were all dumbfounded by the results as most of them expected UK to remain part of European Union. In the midst of the chaotic situation, Brexit sparked an explosive gold price surge once again.

Somehow after the event, gold price peaked and had a free fall, reaching USD1255 per ounce. The decline was due to improving economy and bullish stock market in the US. Investors also anticipated correctly that US Federal Reserves would raise interest rates, which make holding gold bullion less attractive because of the opportunity loss (physical gold does not yield interest).

The US Presidential Election was another event that created turmoil in the gold market. At one point, with Donald Trump on course on winning the election, gold price recovered to the support level of USD1300 per ounce. After the election was over, gold price continued to slide because the uncertainty factors had been addressed.

Currently, gold price languishes at the USD1130 per ounce level. Much of the gain since last year had been erased. The question now is whether is this the right time to buy gold bullion or should wealth builders continue to wait at the sideline to buy gold on the cheap? While predicting the trend of gold price is almost impossible because of its volatility, it is not difficult to note that the global stock market is poised for correction very soon.

              Gold and Silver Bullion

For the past month, the Dow Jones had reached successive record levels and it is a foregone conclusion that the index would hit the 20,000 level by end of 2016. There is too much greed in the stock market and it may not be prudent to enter the market at this moment or even hold on to stocks. This is because if the long overdue market correction do occur, retail investors are unlikely to react in time and liquidate their investments.

Another potential black swan event could be the implosion of the China stock market. Although the Chinese government has intervened and implemented several measures to restore the market in 2016, the root causes of the massive correction may not be addressed. Conventional wisdom is that the market forces should be left on their own and governments should let nature take its course. By intervening the stock market, the Chinese regulators may have inadvertently created an even bigger bubble that may spiral out of control down the road.

Experts have warned that investors should not time the market. On this point, I do not disagree but I always believe there are good and bad times to invest in stocks. When there is too much greed in the stock market, the risk of losing money is high. This is especially so for small-time retail investors who might not realize the dangers lurking in the market, which is dominated by the big players. Whilst we cannot predict when the correction will arrive, it is important to diversify our wealth and not put all the eggs in one basket.

As the year 2016 comes to an end, perhaps it is timely to review your portfolio and start diversifying your assets in precious metals like gold bars and coins. We do not know what 2017 may bring but by taking actions to mitigate the financial risks, you are taking a holistic approach to building wealth.

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Magically yours,

SG Wealth Builder

Updated: December 26, 2016 — 4:01 pm

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