The price of gold has finally cracked. Falling at a much faster pace than what the market expected, investors seem to have lost their lust for the metal, at least for the short to middle term.
A series of unexpected developments account for 12 percent slide in gold prices since the start of this month that sent local bullion prices to Rs29710 per tola from Rs33,342 in the first week of December.
The first blow came from the Middle East, when Dubai requested a standstill in debts, helping the U.S dollar recover a bit in international currency markets. But just as gold prices found feet for another upward spike after Abu Dhabi came to Dubais aid with $10 billion of assistance, it took another hit as greenback rose against the euro on account of debt worries from Greece.
In addition to Greek crisis there are fears that EU economies, mainly the UK, will remain stuck in the recession, after the countrys output contracted in third quarter - a development that forced investors to dump euro for the U.S dollar.
Meanwhile, as positive news continued to flow out of the US economy, such as higher retail sales, house sales, corporate profit amid lower job losses, the U.S dollar kept on gaining confidence, which in turn meant selling the safe haven.
How will gold fare in the months to come, will depend on whether investors will take a long position in the U.S dollar or invest in US business and real estate, which has shown improvement since the start of the third quarter.
The U.S Federal Reserve says that recession in the worlds biggest economy seems to have bottomed out and if that perception is shared by investors - as seems likely - then gold has limited or no chances for growth. The money will soon be channeled back into dollars, which was previously poured into gold to safeguard investors wealth against a weak currency.
Although, domestic gold prices move in line with international bullion, but in the recent gold slide prices in rupee terms fell with less percentage points than in dollar terms due to the depreciation of rupee against the U.S dollar.
When global gold rose by 12 percent during November, domestic prices jumped by 14 percent, but when gold slid by about 12 percent during December, rupee prices eased by just 10 percent. So, while global gold investors may have been hit by the recent downward spike, their local counterparts are still better off, thanks to currency depreciation. Of course, its a bit of dampener for those planning to buy the commodity for the wedding season ahead.
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