Rowley: What about the outlook for gold, and also for other precious metals and commodities in general?

Lloyd-George: I have been continuously promoting investment in gold for several years. I expect in the short term it will reach US$1,300 per ounce, and will reach US$5,000 per ounce over the next three to five years. This price (by 2014 or so) would imply a collapse of faith in the dollar and eventually a political crisis leading to a restoration of the gold standard in some form. Other commodities will continue on their upward path also until 2014, especially the lagging soft commodities, such as corn, wheat, sugar, rice, beef, coffee, soya beans and palm oil (cocoa, today, is at a 25-year high).

Other precious metal prices such as silver and platinum will outperform gold and I expect copper and the industrial metals will remain strong as long as China's infrastructure spending continues and India's follows.

Mobius: The outlook for gold and all commodities is good and we expect high prices (over time) but (the rate of) price rises will be moderate.

Sakakibara: There will be some selling of gold if it goes towards US$1,500 so I would not anticipate a continuous rise in the price. I am not seeing a crisis for the dollar - whether (its descent) is controlled or not I don't know but the US welcomes this development. Some of the Asian countries are shifting from the dollar to the euro or to gold and that is generating a gradual decline of the dollar. That is going to continue.

Thomson: Gold is also not as cheap as it was but I expect it to continue to gain credibility as the only asset that is not someone else's liability, that is, governments cannot print more gold - although I should note that there are a growing number of scams in the field and it is rumoured that a considerable number of tungsten-filled bars are circulating and some have been found in central bank vaults. So care in buying physical gold is essential.

Gold now has a new class of buyer: central banks. India has made a major purchase from the IMF at US$1,050 an ounce and it should act as a floor. China is adding to its reserves from its domestic production. It owns 1,000 tonnes but the US owns 8,000 tonnes and the EU 12,000 tonnes. With China becoming the second largest economy in the world and probably No. 1 by about 2025, it is reasonable to assume China would aim to own between 5,000 and 10,000 tonnes in 15 years' time. Other Asian countries have too many paper dollars and too few tonnes of the yellow metal. That is long-term support for the metal and supports arising price. Silver is underpriced relative to gold and so makes an interesting addition to portfolios. Gold and silver shares are interesting on any pull-back (in price) since they are still selling the same price as when gold was US$800 two years ago.

Kepper: Gold is operating on its own particular set of global supply and demand curves and should be an outperformer, especially when the next down-leg in the US dollar occurs. Gold should be bought and held for at least three to five years, as we are at the beginning of a new cycle for gold accumulation. The long-term trend is still up for the price of gold.

There are two basic motivations to invest: greed and fear. As more and more defaults occur from real estate, corporations, and governments in the next few years, trust in domestic and international financial systems alike will diminish as it becomes obvious that there are insufficient funds to service large amounts of outstanding debt that was issued over the last decade, and the price of gold will rise without any real inflation present. Then inflation begins, and as the price of gold continues to rise, fear is replaced by greed as the primary reason to hold gold bullion.

Gold-mining stocks are riskier than owning bullion as there are dangers from fire, flood, resource depletion, and nationalisation. But as gold prices climb, so do the prices of stocks.

Moreover, many gold stocks average 15 per cent dividends. If your net worth is between US$100,000 and US$1 million, 25-50 per cent of your assets should be in gold and silver. Of the gold, a rough breakdown would be 60 per cent in bullion and coins, 30 per cent in gold mining stocks, and maybe, if you have the appetite, 10 per cent in penny stocks.

Rowley: What about other investment opportunities in 2010 - real estate, for example?

Mobius: Emerging markets still represent the best opportunities in my view.

Lloyd-George: Real estate is certainly an interesting area given my inflation outlook, but it is of course a local phenomenon. The Asian real estate markets will do best, although I, like others, am concerned about the development of a bubble in Beijing and Shanghai, where prices are already very high. The easy availability of capital and of mortgages and low interest rates will continue to support strong property prices in Hong Kong and elsewhere, as well as the weakness of the US dollar. I noticed on my recent trip to China a 'land rush' similar to the 'gold rush' which we see in other communities around the world.

Thomson: Residential real estate in the US is a bargain for patient, cash-rich vultures. Commercial real estate, on the other hand, is a slow-motion train wreck. Residential property in the UK is still expensive and despite the hurrahs of the industry has probably got some way to go on the downside as unemployment increases and financing remains challenging for first-time buyers. Asia, however, is a bubble in formation especially China and Hong Kong. The authorities are aware of the problem and are increasing down-payments but may be behind the curve. Foreign investors may have a double whammy of higher prices and higher local exchange rates.

Kepper: In order to preserve wealth and manage risk, I believe the dominant focus should be on capital preservation and income orientation, whether in bonds, hybrids, hedge fund strategies, and a consistent focus on reliable dividend growth and dividend yield would seem to be in order ever off the commodity sector.

Rowley: Let me close by wishing our panellists - and all of our readers - a happy - and hopefully prosperous - New Year.

This article originally appeared in the Business Times Singapore.

Dec 24, 2009
William R. Thomson
email: wrthomson@private-capital.com.hk

William Thomson is Chairman of Private Capital Ltd. in Hong Kong and an adviser to Axiom Funds and Finavestment Ltd. in London.