Gold has always enjoyed an edge over other metals in terms of its value and prestige, being the best investment option. Investors generally buy gold as a hedge or harbor against economic, political, or social fiat currency crises. The sudden surge in gold prices tends to create a standstill in the bullion market.
Last fortnight saw great volatility in gold, with gold reaching its life time high at Rs. 30,400 per 10gm in the physical market, then dropping again by almost 1000 rupees per 10 gm and then nearing back to its life time high.
As on Thursday, Indian gold prices in the bullion market created a new high of Rs. 30,450 per 10 grams.
With China's economy slowing in addition to the euro zone's debt problems, the USA payrolls data added to worries of a global economic slowdown. The May employment report was quite weak, and it does raise the odds of Federal Reserve to launch another round of monetary stimulus to support the U.S. economy, known as "Operation Twist," at the its next policy meeting on June 19-20. The Twist program extends the maturity of the central bank's Treasuries holdings in a bid to bring down long-term borrowing costs like mortgage rates. The program is set to expire at the end of June.
On Domestic front, India is reeling under the pressure of depreciating currency i.e. Indian Rupee. A currency’s external value declines when their import weighs more than its general exports because it expands the trade gap and increases pressure on the economy as a whole. In the case of India, nearly 70 percent of its oil demand is met by imports. As a result, the plummeting currency will eventually increase import bill and will lead to a rise in oil prices and contribute to inflation. Absence of Government decisions on various policy matters is creating a vacuum in India’s economic growth.
Such factors are paving way for new highs in Gold prices, as it is considered as a safe haven.
This uncertainty in price leaves the short term investors with a risk during making their investment decisions. As the market does its daily job of balancing fear and greed, it becomes increasingly apparent that fear predominates. Investors are abandoning anything with the slightest hint of risk.
On the other hand, an investor would buy the yellow metal at any point, if he/she has a futuristic goal. As also a domestic need for jewelery would trigger the purchase. Jewellers would in turn buy only during dips, preparing for the upcoming festive season. Thus bullion houses would witness lesser demand owing to the plummeting price of gold.
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