Gold’s upswing termed tenuous at best

The recent strong rebound in the spot gold price does not indicate another bull run is setting in, and the rally, driven by the US Federal Reserve’s surprise move, could be only short-lived, warns MTS Gold.

President Kritcharat Hirunyasiri said the Fed must eventually start retreating from its unconventional monetary easing, a move that is expected no later than early next year.

‘‘Negative factors still surround gold. Its upside gain is fairly limited,’’ he said.

The Fed’s unexpected decision last week to maintain its US$85-billion asset purchase programme has prompted investors around the world to return to a risk-taking mode, giving a big boost to equities, gold and bond markets.

Markets’ focus has switched to US economic indicators for hints about whether the Fed will begin tapering at its next meeting in December.

Gold fell by 19% this year, ending a 12-year bull run and losing some of its shine as an investment asset class on optimism that the advanced economies are strengthening.

Mr Kritcharat estimates the spot gold price will trade within a narrow range of US$1,330 to $1,370 an ounce this week.

However, another downward trend looms if it fails to stay above $1,350.

With gloomy prospects for the precious metal, Mr Kritcharat recommends that investors take a short position aimed at earning a profit.

A short position is the sale of a borrowed security, commodity or currency in expectation that the asset will fall.

Thai investors need to change their investment behaviour, as they are not familiar with how to make a profit in a bear market, said Mr Kritcharat.

They must master technical analysis, as 80-90% of gold’s price movement is based on technical factors.

But investors without knowledge of technical analysis can read from research papers, Mr Kritcharat suggested.