Can one say that the 12 year bull run in gold is coming to an end. Majors bankers have hastened to write a rest in peace elegy for gold. But gold eulogizers are still on the prowl.
“The argument that 12 year bull run in gold is over and it is unwinding time are based mainly on two factors: the recovery in US and a technical appeal pertaining to the 12 year figure for certain analysts.” pointed out Martin Patrick, an economist from South India.
The recovery in US has gained some momentum which has strengthened dollar and along with the lack of need for a safe haven asset is putting pressure on gold to the downside.
Europe meanwhile is still in doldrums and the recovery in US is yet to achieve a convincing momentum, he said. This may support gold for a while to the effect that:
“For the better part of this year gold and dollar would remain range bound and thereby volatile.” he said. “Investor caution is heavily advised in these highly uncertain times” he hastened to add. The perceived gains could well be trumped by actual losses if one is not careful, he said.
"I cannot say with surety that the bull run has indeed come to an end." he said citing various factors.
He also spoke about occasional decoupling that may occur between Indian and international gold markets as times move ahead. He admitted that there is a high positive correlation between gold prices in India and international markets. But during certain times a decoupling occurs (when it is festive season or marriage season in India.)
Now, to arrive at a price of gold in India and to see if the prices would actually turn bearish to the extent that a panic situation would arise, the following factors should be taken into account:
Rupee fluctuation
Rupee and gold are closely related. If Dollar strengthens and Rupee weakens, India will have to shell out more of rupee to buy gold and vice versa. Currency is a prime factor determining the price of gold.
Inflation differential
Imagine that India is having a 7% inflation against US' inflation rate of 3%. Given the higher rate of inflation in India it can be summarised that gold demand in India can go up trumping US demand.
BRICS' growth
Now this is yet another factor that we cannot ignore. The BRICS share many of the economy attributes with each other. They may have a common future and the nature of their growth can reflect in gold prices.
China & India
A part of BRICS; nonetheless an economy on its own, China is also the world's biggest producer and consumer of gold. China's gold output and demand as well as its growth or the lack of it can move markets widely and often wildly. India's case require no explanation.
Europe & US
The continent is facing turbulent times and debt ridden economies are undergoing tough times; the uncertain plight of the Eurozone is well reflected in the dissidence in election results that came out of Italy.
US, the biggest economy in the world can make or mar the prospects of gold depending on whether its economy is growing or declining.
The factors above by no means provide an exhaustive listing. It may reveal a few essentials and if subjected to further scrutiny can help an investor arrive at genuine conclusions before investing, subsequent to taking into account other factors like central bank buying and interest rates.
No comments:
Post a Comment