Has gold lost its investment sheen?

Prices are steadily creeping up but HSBC makes the case for taking long positions.

There is a chance for investors to reap gains, taking into consideration the possible strengthening of the positively correlated EUR currency and continued demand from central banks, among other price-determining factors.

Here's more from HSBC:

Investment case: Gold prices are being driven up by anxieties about large and unsustainable government debt, easy monetary policies, and mounting geopolitical risks. A shift in focus from eurozone sovereign debt to the US and its fiscal problems in an election year may stimulate investor demand for gold. We are maintaining our annual forecasts of average gold price prices. 

Two byproducts of the global financial crisis are declines in investor confidence and eroding trust in the financial system and government policies. The climate is conducive to investors to reestablish and build long positions in the bullion market. Also, if the EUR strengthens, this could support gold, as bullion is positively correlated to that currency and negatively correlated to the USD. 

Supply: Buoyed by significant investment earlier in the mining cycle and with prices well above production costs, mine output should rise for the next five years. High prices are supporting historically large supplies of recycled scrap. 

Demand: High gold prices should curb increases in jewelry demand, as growth is coming mostly from China and other emerging markets. Demand for other forms of physical gold, including coins and bars, is strong but could ease if prices rise more. A shift in central banks’ attitudes toward bullion, as they have become strong buyers of gold after decades as net sellers, is perhaps the single most important bullish development for the market since the creation of gold ETFs. We expect this to continue, as official sector demand should tighten supply/- demand balances, which has positive ramifications for prices.
 

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Tags: gold investment, gold prices, HSBC on gold investment and prices