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Events that greatly influenced gold

After a slight decline in gold prices at the start of the year, markets saw a continuation in the upward trend of gold. The worsening European debt crisis, weak results of U.S companies and instability in the Middle East were fundamental reasons behind the surge in gold prices in 2011. By analyzing the price movements of gold in 2011, a great understanding of the relation between global happenings and investors transactions in gold can be accomplished. The precious metal started the northwards movement in February as the global demand increased after the unrest in the Middle East (see table). A slight decline was seen in May after Al-Qaida vowed to continue its fight against America and the overall the upwards trend continued in the first half of 2011. The 3rd quarter of the year was the most turbulent one when the price of an ounce of gold crossed the $1800 mark. On august 8th, S&P downgraded US credit rating from AAA pushing prices further up by $100. Also, quantitative easing programs of the US government to maintain interest rate at low levels kept gold in demand. According to an estimate, demand for gold increased by 6 percent in 3QCY11, backed by increase in demand from Europe due to the increasing instability in the continent. Near the beginning of the 4th quarter, gold experienced the largest decline in 28 years when it fell by 10 percent in 3 days. This was due to the fact that Chicago mercantile exchange and a few other commodities exchanges increased margin requirements for commodities. The increase in margin requirement was made to curtail risk generated due to a surge in volatility. This, however, resulted in investors liquidating their positions in gold to meet the margin requirement. Overall, the ambiguity about the euro zone debt crisis, talks between the major European economies and the failure to reach to a consensus kept fueling volatility in the bullion market in most of the second half. Events show how investors revert to gold considering it a safe store of wealth in times of bad economic and security state, how companies and individuals make use of the gold to generate liquidity, and how, over time, gold has developed a correlation with other assets with whom once economists believed it had no relation, etc. Such analysis can help analysts predict customer sentiment in different times and help different stakeholders take decisions that would minimize risk in future.


 



 
Index Closing Chg%
Arrow DJIA 16,677.90 1.32
Arrow Nasdaq 4,452.79 1.60
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Annual2013/14
Foreign Debt $61.805bn
Per Cap Income $1,386
GDP Growth 4.14%
Average CPI 8.6%
MonthlyAugust
Trade Balance $-2.807 bln
Exports $1.911 bln
Imports $4.718 bln
WeeklyOctober 23, 2014
Reserves $13.465 bln