GOLD IN A BUBBLE STAGE?

Gold surged to a high of 29770, quite close to its life time high of 29900.


Internationally gold reached an all time high of 1920$ in September 2011, by Wednesday noon gold reached 1662$ in the international market. Though gold is almost 150$ down from its high, the current rates in rupee terms have almost reached its life time high.


The main reason behind this is the weakening of the rupee as against the dollar. The 15% depreciation in the value of the rupee against the dollar since September 2011 is aiding the upswing in gold prices


Assuming that if gold would have crossed its life time high of 1920$ today, then gold would be selling at Rs.32000 in the Indian market.


Though Retailers have sold gold at 30,000 (life-time high), but the rates in the wholesale market have not crossed 29770. Jewellers and traders are not happy with this increase, as the demand has weakened despite of the festive and marriage season.


This Akshaya Tritiya, gold sales saw an increase of only 25%, which would have been much more otherwise. With gold prices shooting up day-by-day, marriage buying of gold seems to have taken a severe beating. Most jewellers are fully stocked after lower-than-expected sales during this season


The US Federal Reserve’s decision to keep interest rate unchanged, indication of a third round of quantitative easing measures, and renewed concerns over the financial health of the euro zone sparked by a downgrade of Spain’s sovereign debt have put the spotlight on bullion in the past few days.


The trading sentiment further bolstered as the mental in overseas markets climb for a fifth day for the best run since January as concern of deepening euro-zone debt crisis boosted demand for alternate investment. Analysts say the precious metal is likely to continue its rising streak at least for some more time.


Many even believe that gold is in a bubble stage. I doubt we are in a bubble stage. When you went to an investment conference in 1989, everybody owned Japanese stocks. And in 2000, everybody owned tech stocks. That is the bubble, when the majority of market participants own an asset. I think there are more people that own a tech company’s stock than gold.

In the long run, that central banks all over the world are going to print money because they know nothing else. The purchasing power of currencies will continue to go down. In other words, the price of gold and silver will move up in the long run.

GOLD BEHAVING MORE LIKE A RISKY ASSET THAN A SAHE HAVEN ASSET

Gold edged up on Wednesday after a successful Spanish debt auction eased fears about the euro zone debt crisis, but gains were capped as the euro remained under pressure ahead of a longer-term debt sale in Madrid later this week.

Gold was again little changed again in European trading on Friday morning, unable to find a strong direction and instead likely to replicate the recent volatile but rangebound trading pattern ahead of the weekend. 

Spot gold stood at $1,640.90/1,641.70 per ounce, down just 70 cents. It fell to its lowest since April 5 at $1,631.10. The metal has recently traded in volatile fashion in a tight band, unnerving investors - prices lost nearly one percent to a one-week low of $1,634.70 in the previous session after reaching its best in 10 days above $1,680 last week. 

Gold and silver continued to zigzag in recent days; even though both metals didn’t perform well during most of the month (so far). Their fall wasn’t sharp and they could change direction if there will be another speculative movement in anticipation for next week’s FOMC meeting.

Gold may have been undermined by news that the International Monetary Fund (IMF) raised its global economic forecast to 3.5 percent this year from its previous forecast in January of 3.3-percent growth.

The euro zone is still expected to shrink this year but at a slower pace of 0.3 percent than the previously forecast 0.5 percent. Meanwhile, developing economies such as China will grow even more this year, expanding at 5.7 percent versus its previous forecast of 5.5 percent. The US should grow 1.4 percent this year.

In addition, this morning's short-term bill debt auction in Spain went smoothly, with the country raising more money than anticipated at 3.2 billion euros.

This saw gold's safe-haven appeal fade, with investors looking to riskier assets such as equities, which rose today

On the physical side, an unexpected lowering of interest rates in India could lend some support to demand, which has been notably weak since its government introduced some changes to the import duty tax in March. This was despite the start of the spring wedding season and ahead of the auspicious Akshaya Tritiya festival that falls on 24th April. After Dhanteras,. The highest sale of gold is witnessed on Akshaya Tritiya.

Over in India, traditionally the world’s largest source of gold bullion demand, jewelers are reporting a 50% drop in sales ahead of next week’s Akshaya Tritiya festival – seen as an auspicious day in the Hindu calendar to buy gold.

According to a recent report, Perth Mint, which processes all of Australia’s bullion, decreased by 9.6% during March. This news might have been due to Jewelers strike in India during or a decline in demand for gold investments.

Either ways, if this trend continues, it may adversely affect gold’s performance in near future.

Gold has traded in volatile fashion in a tight band over the past two weeks, unnerving investors who have mostly preferred not to hold onto their positions. But short-selling has alternated rapidly with waves of safe-haven demand while macroeconomic conditions remain worrying.