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Volatility Seen in Precious Metals Market

Last week the price of gold on the New York Mercantile Exchange declined by 7 and a half percent, the most since 1990. By Wednesday of this week it was down again: 13 percent off from the 26-year high it reached on May 12th. On Thursday gold prices turned up again. VOA's George Dwyer reports on the recent volatility in the precious metals market.

In good times and bad, wise investors buy precious metals as part of a diversified investment portfolio, says gold market investment analyst George Milling-Stanley.

"What you really want are assets that move in different directions, so that you have some protection."

What investors need to protect themselves against is over-commitment to traditional investments - such as currency and shares of stock and bonds. When they perform similarly, as Mr. Milling Stanley says they have been doing in recent years, investors risk sharp losses should the market turn downward.

"So if the three traditional investment assets are starting to move in a correlated fashion, then an uncorrelated asset like gold becomes even more valuable."

The value of gold has increased 170 percent in the past five years - Milling-Stanley says its performance is related to four specific factors. First, the value of the US dollar has been declining. Second, inflation in US, while not great, has been steadily inching up. Third, the performance of US equities has been generally lackluster…

"And the fourth, non-gold market factor that effects the gold market is geopolitical tension. And I do not think anyone would argue with my contention that geopolitical tensions are worse now then they were five years ago."

Milling-Stanley points to one key geopolitical benchmark - January 2006, when Iranian President Mahmoud Ahmadinejad announced his nation had resumed nuclear research - raising the specter of conflict with the U.S. and other concerned nations.

"That is probably the one that has given us most of the oomph in the gold price in just the last few weeks."

As for the market's seesaw movements of recent weeks, he explains that recent drop-offs in gold's value should be seen as short-term market corrections - and that long-term prospects for gold still appear strong.

"There are good reasons why most analysts are expecting the gold price to pick up and continue to rise for another few years to come yet. So there is still a good deal of potential in it."

That's something many investors believe in.