Gold back to old grounds

Not many people know this. But one of the biggest economists of 20th century, John Maynard Keynes, thought that gold possession had a Freudian thing to it. Keynes was an ardent follower of the famous Austrian psychoanalyst and many of his thoughts were based on the Freuds multi-staged infantile psychology.
The exact details of the Keynes-Freud-gold connection will obviously have to be censored, but here is what Keynes wrote in his A Treatise on Money: Dr Freud relates that there are peculiar reasons deep in our sub-consciousness why gold in particular should satisfy strong instincts and serve as a symbol.
This column does not want to debate if Freud was right. But even if he was, then those sub-consciousness instincts seem to have been wearing off since October 2012. Since April 10, global gold prices have seen an even more axing behaviour - falling sharply to level last seen in February 2011 - leaving pundits almost clueless about the situation.
"Golds movement has gone beyond my understanding; a wait and see strategy is advised," Haroon Chand, President All Sindh Sarafa Jewellers Association told BR Research yesterday.
Chands view is seconded by Mansoor Ali, the Chief Business Officer at Pakistan Mercantile Exchange. Ali says it is rather difficult to say whether gold has bottomed out or not, adding that a major technical correction had been on the cards since the last quarter of 2012.
A February 2013 presentation by Qasim Anwar, technical analyst at local brokerage AKD Securities also pointed in the same direction. "The corrective cycle initiated from a peak of 1921 might still be incomplete, and could dive to much deeper retracement level over the next three to six months," the presentation noted, highlighting a downside potential of 1300-1283 level.
Gold slide, however, is not just a technical breather. An array of fundamental factors is also pushing gold southwards.
At one end, US Federal Reserve is expected to tighten its monetary policy by putting an end to its quantitative easing (QE) programme, implying that US inflation will likely ease. Across the Atlantic, there are fears of deflation in the euro region.
IMFs World Economic Outlook of 2012 warned that the euro region had a probability of 20-25 percent to fall into deflation by the end of fourth quarter of 2013, whereas Japan had a probability of around 45 percent.
Adding to these worries was the announcement that Cyprus may consider selling its gold reserves to resolve its problems, which may, set a precedent for other troubled European economies. The likelihood of state gold selling may be low, but the news was enough to frighten gold investors.
The question now is where would gold go from this point onwards. The yellow metal had bounced back a bit by yesterdays mid-day trade, but analysts say that it cannot be construed as a reversal. The metal is still weak and is likely to shred a few more dollars.
Some, such as Mansoor of PMEX, say that gold may find a support around $1200-1250 per ounce - the level being a break-even point for many gold miners. Technical analysts, however, caution that the correction may extend till $1000, before it enters a long-term consolidation phase between $1200-1400.
Its too early to predict golds long-term movement. But one thing is pretty clear: the sub-consciousness instincts to hoard gold against troublesome times may be wrong. For whenever that dreadful time comes, gold will be a bit hard to eat and cold to wear.