While global spot prices have risen almost 35% since January, briefly hitting a record $US1921 yesterday, the strength of the New Zealand dollar against its United States counterpart during that period has undermined potential gains for domestic investors.
Global sharemarket volatility and the possibly of double-dip recessions in the euro zone and the US have seen gold briefly surpass the $US1900 mark three times in just over two weeks, as investors fled stocks and riskier currencies for the historical safe haven of gold.
Craigs Investment Partners broker Peter McIntyre said while buying gold under $US2000 still had its merits, investors had to consider the strength of the kiwi against gold's global rallying price.
"Gold at over $US2000 an ounce is getting into bubble territory," he said.
Gold's popularity has been buoyed by the demise of other safe haven investments, such as US Treasury bonds which are paying almost 0% interest, and the Swiss franc, where its Government is fighting to contain its meteoric rise in strength which is threatening its exports and economy.
Mr McIntyre said much of the recent gains in gold's price could be attributed to central banks buying up stocks, which includes the International Monetary Fund's having released more than 400 tonnes on to the market since late 2009.
While mired in worsening economic woes, the euro zone was reported at the end of last year to hold the most gold stocks, at 10,792 tonnes, while beleaguered Italy was ranked fourth in the world, with 2451 tonnes.
Switzerland's decision to peg its safe-haven franc to the euro may finally see gold prices hit the once-unimaginable $US2000-an-ounce mark, as the precious metal holds on track for its strongest annual rally in three decades.
The Swiss National Bank (SNB) shocked global markets on Tuesday when it said it would buy unlimited quantities of foreign currencies to prevent the franc from rising above 1.20 Swiss francs to the euro, to remedy the franc's ascending strength.
By buying euros in unlimited amounts to weaken the franc, the SNB is in effect putting more of its own currency into circulation, which threatens to trigger inflation.
Much of gold's rise this year, at present up 34% since January and on track for its largest yearly gain since 1979, has been fuelled by cheap cash, provided chiefly by Western central banks battling debt piles large enough to derail global growth.
The $US2000 mark is now coming clearly into view, although its sustainability at that level is unclear.
Natixis strategist Nic Brown said there was no reason gold could not go through $US2000, but not a long way through.
"This explosion in liquidity creates demand for gold and creates the perception for gold prices to go higher. But ultimately, this is a bubble fuelled by liquidity," Mr Brown said.
- Additional reporting: Reuters.
