The Hindu Business Line : ‘Gold may touch $1,000 sooner than expected’

Chennai, Oct. 10 Gold may hit the $1,000-an-ounce-mark again sooner than expected in view of continuing financial turmoil and investors’ rush for the safety and protection traditionally offered by the yellow metal.

“Gold can hit $1,000 sooner than thought as more banks and financial institutions in the US and other OECD countries are expected to collapse, aggravating the situation sufficiently to push gold above $1,000. The impending weakness of the dollar against a basket of major currencies is also expected to give a fillip to gold prices,” said Mr Jayant Manglik, Head (Commodity Business), Religare Commodities Ltd.

“I am bullish on gold because, in the end, as the global economic recession deepens, Governments will find that the only way out of this mess — the only way to pay for all the private debt accumulating — is to print more money. In other words, to inflate,” said Mr Jeffrey Nichols, Managing Director of American Precious Metals Advisors.

Not just ‘gold bugs’

“It is no longer just ‘gold bugs’ buying the yellow metal but regular investors and savers — from billionaires to the middle class — rushing for safe haven,” Mr Nichols said.

However, a section of the analysts are not too bullish on gold touching $1,000. “Gold may rule firm for a short period but once the liquidity crunch aggravates, we are likely to witness a sell-off. The prices are being held artificially up without any matching physical demand,” an analyst said, adding that gold could move sidewards, mostly between $800 and $850.

But Mr Manglik said though a short-term drop in physical demand is seen when gold prices rise, it is followed by resurgent demand that will be evident from year-end import figures.

Need to protect

Mr Nichols said those buying gold were not traders looking for gains but people who are scared and seeking to protect their wealth, driven by fear that their savings are at risk. “This is why the demand for gold bullion coins is at levels not seen in three decades and why bar fabricators serving West Asia and Indian markets are reporting increasingly long delivery times and rising premiums,” Mr Nichols said.

“Gold is good in the short-term due to high uncertainty in financial markets. Similarly, the medium-term prospects for gold seem bright in the absence of alternative avenues to invest,” Mr Manglik said. “Gold will remain the asset of choice for those who value financial security. Typically, the liquidity crunch will not have much effect on gold as, rather than new investment, a large part of the investment flowing into gold will be money shifted from other assets such as equity, real estate and bonds. This situation will last till global markets stabilise and there is economic turnaround once again,” he said.

Demand strengths

“The downside risks to gold seem mitigated by the strength of physical demand for investment grade jewellery and small bars in West Asia, India, China and other parts of Asia,” said Mr Nichols.

Gold continued to delink from crude and the rising dollar as fear drove investors to its safe haven status. “Gold will continue its roller-coaster ride, exhibiting short-term price volatility, both up and down,” Mr Nichols said.

Mr Manglik said a falling rupee against the dollar could mean increased prices but it would never stop Indian consumers from buying gold earlier. Referring to the fall in imports during the first half of the year, Mr Manglik said that since the festival season falls in the second half, most of the buying is done during that time. “Even if the per capital gold buying reduces, it will be more than made up by increasing spread of affluence and prosperity in terms of sheer numbers,” he said.

More Stories on : Gold & Silver | Outlook

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page