Last Updated : 16 April 2013 at 15:20 IST
Gold may have caused you to cry. But it has the potential and potency to wipe your tears.
The forces that are driving gold down are not necessarily fundamentals. Hedge funds, the momentum players, are massively selling gold and other precious metals and moving into equities in US and Japan; South Korea is yet another stop for them where the government has announced stimulus measures to the tune of $15.3 billion dollars.
"I sincerely believe that the moment the now significant short position holders begin to take profit, that this market will rally at least 50 percent of the fall just seen, just as rapidly," Clifford Bennett, chief economist at financial services firm The White Crane Group said in a note and was quoted by the CNBC as saying.
Once the short sellers begin to book profits, the markets would regain their verve.
Data at work
The recent US jobs data and the very decent Chinese GDP data are least encouraging; not to speak of Eurozone crisis as lately manifested in Cyprus. These data sets have the potential to swing the gold markets to either sides depending on what it holds for the global economy. If they turn out to be bad, then gold futures would climb.
While US economy added 88000 jobs in March, way below the March expectations of 200000, the markets were disappointed. Then came the retail sales data of US which also disappointed the markets. It is worth noting that the retail sales data followed the S&P 500 hitting an all time high on April 10.
“We will know more about the state of US economy in a period of one month. The current uptrend in equities may exhibit an aloofness in a while. Gold, thus may see settled at $1400 levels near term.” said Martin Patrick, an economist based out of Kochi, South India. “The hedge funds not only sell; they also buy,” he pointed out.
“One can also not expect better reports from China, ” Martin said. “But I don't expect to see a macro economic collapse in China”, he added.
See also: Who will bailout China?
See also: Who will bailout China?
The recently released Chinese GDP data portrayed modest growth of 7.7% for the first quarter that ended in March. The data effected a rout in base metals and crude oil futures.
Cyprus issue has still got the potential to rock the markets. We should also see if any other nations may seek a bailout. Cyprus bailout sum has climbed to 23 billion Euros.
Meanwhile, in a latest development Cyprus may be front loaded with cash.
"With a view to delivering an impact on the ground as soon as possible I would propose to explore with the budgetary authority the possibility of frontloading future (EU budget) assistance for Cyprus," European Commission President Jose Manuel Barroso said in a letter and was quoted by the Reuters as saying.
This means Cyprus may get allocations to the tune of 945 million euros on an early note rather than over seven years. Thiss could significantly boost the prospect of the economy. If this materialises, then Cyprus may not have to sell its familuy silver. The prospect, if it becomes true can set a good precedent and thereby help evade the possibility of another round of potential sales of gold by other nations.
"I do not exclude seeking additional support from the budgetary authority, despite all the well-known difficulties currently associated with these matters at EU level," Barroso said.
The news for now may contribute to the volatility in gold rather than significantly contributing to the uptrend.
“Wait-and-watch”, advised Vijayakumar, Chief Investment Strategist, Geojit BNP Paribas.
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