Foreign funds will return to investing in gold as a safe haven with the euro-zone debt crisis worsening and the US economy weakening, causing gold prices to possibly reach US$1,900 an ounce this year.
Kasemtas Dardarananda, an MFC Asset Management fund manager in the global equities department, said gold will start gaining again now that the US unemployment rate and other key economic data were worse than market expectations.
The latest survey of US and world financial institutions added more pressure on the US Federal Reserve to launch a third quantitative easing (QE3), with calls from Morgan Stanley and Socie{aac}te{aac} Ge{aac}ne{aac}rale.
Market analysts all agree the possibility of another round of QE is as high as 80%. Fewer than 100,000 jobs were added in April, with the same last month, making it likely the government will use stimulus to push economic growth to 3%. An unemployment rate of 7% in 2014 is a goal, down from 8.2% currently.
The QE3 scheme will likely involve purchasing nine-month maturity housing bonds to motivate the stagnant property market.
Since the subprime crisis in late 2008, when economic data in Bloomberg's Possibility of Monetary Stimulus Index (see graph) passed 90%, a stimulus always occurred.
Because these stimulus packages inject liquidity into the economy, depreciating the US dollar, commodity prices for items such as gold are expected to rise sharply, said Mr Kasemtas.
Long-term trends for gold prices are still positive due to the depreciation of key global currencies, US interest rates likely to remain near zero until 2014 and low inflation.
Central banks continue to buy gold as a foreign asset reserve instead of high-risk currencies, but exploration and production costs of gold mining are rising.
Analysts see an average price of gold by the end of the year at $1,840 an ounce. Investors should make gold about 10% of their total investment, he said.
The capital market remains under pressure because the Greek political issue could worsen the euro-zone situation. If the Syriza Party, which is against the bailout package, wins the election, then the bailout with the European Central Bank and the International Monetary Fund may be reconsidered, which may cause Greece to exit the EU.
In this case, risk asset value would drop sharply, and Greece and the EU would be substantially damaged. Greece would face a liquidity problem including an inability to pay government salaries and other fixed expenses. Greece would stop payment of debts causing EU financial institutions to lose more than 200 billion (7.85 trillion baht) or 2% of Europe's economy.
"The most important factor is deposits flowing out from Greece and the euro periphery, which will cause bankruptcies and damage all around the EU," said Mr Kasemtas.
"The hope is Greece will stay in the EU and a party that supports the bailout package will win and set up a government, reducing assets' high risk."