Gold dealer warns investors to watch and wait

Mike O'Kane of New Zealand Mint says there are more sellers than buyers on the market at the moment. Photo / Doug Sherring

A bullion dealer is warning investors to beware of jumping in to take advantage of gold prices which hit record highs this week.

Financial turmoil in Europe spurred demand for an alternative to currencies and gold has rallied to an all-time record in US dollar terms.

Gold was trading at US$1235 an ounce or $1722 yesterday, down from Wednesday's highs of US$1248 and well shy of the $1951 it reached in February last year when the New Zealand dollar was weaker against the greenback.

New Zealand Gold Merchants director Tony Coleman said investors were best advised to sit on the sidelines for the moment. "I'm not saying the price is going to go down much but on a spike-up like this there will be some profit taking. You might as well wait," he said.

"There's nothing worse than making an investment and a day later the price drops $30 and gives you that hollow feeling."

Coleman said trading in gold through his firm had been muted during the past few weeks although there had been more silver buying which has also enjoyed strong price gains.

"It hasn't been as busy as we'd have anticipated. Most customers know this is not the time to buy. It's craziness to buy on a sharp rise like this because sharper rises mean sharper falls."

Most of his company's gold investors were sophisticated contrarian investors who had chosen the metal ahead of shares or property. Many were Americans living here and like Australians had much more experience in trading in precious metals than New Zealanders.

"They have the culture of buying gold."

Many buyers of silver were in their early 20s because entry into the market was cheaper but they had to be prepared for volatility which could see the price swing $40 a day.

New Zealand Mint says the past few days have been busy but nowhere near the frantic trading days of September 2008 as financial markets melted down in the wake of the Lehman Brothers collapse.

Chief bullion trader Mike O'Kane said there were more sellers than buyers.

"We're seeing another surge in demand but we still look at it as a long-term thing. It's probably not the best option [for] anyone who wants to buy today with an eye to selling tomorrow."

However, given the relatively strong New Zealand dollar, investors could choose where they wanted to be exposed to risk.

"If you're looking at it from a currency exposure point of view it's definitely time to get in at the moment," said O"Kane.

"We're only a few years into a bull run and although we're seeing some volatility right now but if you go down the road in five years we'll be talking about this as if it's a blip."

The price yesterday is still well short of the 1980 high of US$873 an ounce which when adjusted for inflation was around US$2300 in today's dollars, according to the US Labour Department.

GOING UP

GOLD PRICES PER OUNCE IN NZ$
* Yesterday: $1722
* A month ago: $1625
* Sept 2008: $1166

SILVER PRICES PER KG IN NZ$
* Yesterday: $883
* A month ago: $825
* Sept 2008: $540