Crushed by the hazy global economy, the investors have been mystified lately over the precious metal which has been in a limbo. According to the latest report issued by the World Gold Council, gold demand for 2QCY12 plummeted by seven percent YoY, largely driven by a fall in jewelry demand of 15 percent YoY India and some softening in China. Also, the investment component knocked down the overall demand. The second quarter also saw a very strong demand from the official sector, mainly the central banks, for increasing gold reserves. Net purchases for 2QCY12 stood around 157 tons, a rise of 138 percent YoY. Central banks that indulged in purchasing were mainly in Central Europe and Asia, like Russia, Kazakhstan amongst the other smaller Eastern European and Asian countries. Overall, the reasons for a strong demand by central banks remained the same; diversification away from the US dollar, Euro, and as support to currencies under stressed economic circumstances. On an important note, this could be a developing trend in the long term. Debunking the overall 1HCY12, demand from the official sector remained lively at 250 tons versus 1HCY11. If this were to continue, net purchases of perhaps 500 tons, a record since the end of the gold standard, is not dispensable. On the supply side, the statistic tumbled during 2QCY12 by six percent YoY to 1,059 tons. This was largely due to a fall in recycling and only a small growth in mine production. Analysts around the globe opine that mine production would merely beat three to four percent growth rate annually, not lifting any hopes for global supply. Theoretically since recycling moves with the gold prices, a consolidation in prices could likely result in further decline in recycling. On the other hand, if there is strong rally in the gold prices and an increase in the gold demand, recycling is expected to increase with mine production. As of now, market is buoyant, and hence in limbo, as mine production is forecasted to not go beyond four percent annually, and recycling is really being driven by the price of gold. What the world has seen over the past year is the gold trading within the range from the heady days of rapid surge in gold prices. It is worth remembering that the yellow metal will enter into the 12 year bull market even at the existing $1,600 oz price level. Even though gold has been consolidating for over a year now, the overall picture remains healthy. Glancing into the latter part of the year, there are fears of deflation, eurozone breakup, US economy, US elections, and a slow down in China and India. More policy easing in eurozone is on the cards. The risk of Grexit and bailout for Spain and Italy linger. Quantitative easing in US is likely as the economy is not growing fast enough to reduce unemployment significantly. And there is latitude for interest rate cuts in China as the economy slows down. All this is should bode well for the gold prices towards the end of the year.
Comments
Comments are closed for this article.