The bull run in Gold is over: Expert

Last Updated : 04 April 2013 at 13:45 IST

Is it time for the yellow metal bulls, having lost their mettle (as thought by various sources), to retire? Is the 12 year bull run in gold over?

The answer depends on who you ask to...

Yesterday, US markets witnessed heavy sell-off in gold on technical grounds.

"There was no specific fundamental news event either Tuesday or Wednesday to account for the strong selling pressure in the gold market. The recent gains in the U.S. stock market, as well as generally stronger stock markets worldwide, have worked to funnel investor and trader monies away from hard assets like gold." Jim Wyckoff of Kitco News said in a note.

“See, US is making come back economically. Just go through the recent housing starts data and US automobile sales data. Both portray a robust picture of the economy.” said Vijayakumar, Chief Investment Strategist of Geojit BNP Paribas, South India.

“The day George Soros exited gold holdings in a substantive manner, it was for sure that the gold bulls would finally call it day.” he added.

When it comes to Europe, he said that “though it may take some time, Europe would recover.” And when the US economic data gets to be robust, a phase out of QE looks imminent, sooner...” he added.

This can negatively impact gold prices and in turn promote equities, he said.

“I think that the bull run in gold is over.” he said. The Bank of Japan stimulus measures may not aid gold beyond a point, he noted. “Gold is moved primarily by US and Europe data.” he pointed out.

Japan's central bank, Bank of Japan, has announced fresh stimulus measures and has pledged to meet 2% inflation target within two years. The central bank has decided to buy 7 trillion yen ($746 billion) of bonds a month. Yen, as a result crashed. The Bank would also purchase ETFs with "a view to lowering risk premia" of asset prices.

But the said measures may not help gold futures in a big way said Martin Patrick, another economist from India's Kerala State. He said the BoJ measures may create some spill over effects on gold price, but may not promote prices substantially.

“There is a lack of conclusive evidence to suggest that gold would move higher on stimulus measures. A positive correlation is lacking in the form of some perfect evidence in this regard.” he added.

“Also, I cannot conclusively say that the bull run in gold is over as economic problems still linger in US and Europe. But I would say that some kind of negativism or pessimism has taken over gold markets.” he noted.

Matrtin, however did not rule out the possibility of manipulation in gold futures. “Yesterday's sell off in gold is combination of impression and manipulation...impression that all is well with US and things are getting better in Europe.” he said. 

As published here: http://www.commodityonline.com/news/the-bull-run-in-gold-is-over-expert-53726-3-53727.html

Is the 12 year bull run in Gold really coming to an end?

Last Updated : 26 February 2013 at 12:40 IST

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. 

As published here: http://www.commodityonline.com/news/is-the-12-year-bull-run-in-gold-really-coming-to-an-end-53084-3-53085.html