Thursday, July 14, 2011

Investing carries risks — even for gold - MarketWatch

By Myra P. Saefong, MarketWatch

SAN FRANCISCO (MarketWatch) — Gold prices hit record highs this week and they’re looking increasingly more bullish, but there are a few things that can put a damper on the metal’s party.

After all, there are risks in every investment, including gold — even though few seem to think so.

“In any investment analysis, particularly one in which you’ve come to a bullish conclusion, an investor needs to constantly check their premises,” said Brien Lundin, editor of Gold Newsletter. “You need to ask, ‘what can go wrong?’ in your argument.”

So I queried several analysts, asking them for a list of some of the factors that could potentially weigh on gold or cause a drop in prices. Some refused to participate, some provided only the bullish case for gold and others offered scenarios that would pressure prices, but said they’re not likely to happen any time soon.

That’s no surprise. Gold prices have experienced a steep climb over the past decade. On Thursday, gold logged a record settlement price of $1,589.30 an ounce in New York. Read about Thursday’s gold action.

“This year, investors have been engulfed by the perfect storm for gold, resulting from the Japanese earthquake and tsunami, Middle East and North African turmoil, credit downgrade warnings in the U.S. and the exacerbation of euro-zone debt fears, amongst others,” said Jeb Handwerger, editor of

Gold is bouncing to new levels, and skittish investors are flocking to the precious metal following uncertainty over news in Europe as well as at home, Tatyana Shumsky reports.

“This chaos has had a positive effect on gold bullion and now investors are finally jumping on board,” he said. “This may be a significant move for several weeks.”

So why should anyone even suggest the possibility for any sizable declines in gold prices?

If the market develops a “parabolic rise” it may encounter “severe downturns,” said Handwerger, who’s also a natural-resource analyst. “Investors in any asset must grow cautious as a trade becomes crowded.”

Finding out just how much caution to take is a challenge in a market where, apparently, a bullish stance is most common and supportive news for gold prices is plentiful.

But silver is a good example of just how quickly a tide can turn.

For the month of April, silver prices were up 28%, then posted a drop of 21% for the month of May following a series of margin requirement increases that squeezed some investors out of the market. Read the May 31 story on gold and silver.

“The recent spike in silver, followed by a waterfall decline due to the raising of margin requirements, reminds long-term precious metals investors that one must be prepared to accumulate products when there is a panic and sell them when there is euphoria,” said Handwerger.

The story is, of course, different for gold, though it wasn’t completely immune to silver’s plunge. Gold was up 8.1% in April then fell 1.2% for May.

View the original article here

Marc Faber News

Nouriel Roubini Blog

Jim Rogers News

Bob Janjuah News

Gary Shilling News

Warren Buffett News

Dennis Gartman

Doug Kass News

Suze Orman News