Gold has broken its psychological barrier once again. The metal was last seen trading around $1045 an ounce, crossing its 17-month high of $1028 an ounce hit in March last year. The hike comes despite expectations of increased supply by the International Monetary Fund which plans to sell about 400 tons of gold in the next 5 years.
Broadly speaking, there is one major reason behind the resurgence of golden bulls. The weak state of global economy with recovery in the United States is feared to be transitory, despite positive growth witnessed in US industrial production and sales data.
Many suspect that governments stimulus packages will lead to spiralling inflation in the future. News regarding US budget deficit of $1.6 trillion and constant increase in unemployment level has also shattered the confidence of central bankers around the world prompting them to diversify their investments into the safe haven.
According to the World Gold Council - an association of worlds top gold miners -- major central banks around the world will act as a net buyer of gold this year for the first time since 2000. Interestingly, the central banks view is shared by consumers across the globe.
In recent years, the trend in gold buying is shifting from jewellers to investors, as Joe the plumber has also realised that gold is a safe bet given its star performance asset in the past three years. This is evident from the fact that gold holding in Exchange Traded Funds has doubled and reached above 1096 tonnes from 550 tonnes in 2007, according to SPDR trust, a leading gold advisory firm. Meanwhile, annual gold consumption for jewellery has been constantly decreasing, from 3000 tonnes to 2000 tonnes over the past decade.
The demand for yellow metal by retailers is also rising on a quarter-on-quarter basis. Retail investment that includes physical gold in the form of bars and coins was 23 percent higher in the second quarter of 2009 over the preceding quarter and 12 percent higher over same quarter last year. On the contrary, gold jewellery consumption fell by 22 percent in second quarter 2009 compared with the same period a year ago.
Although, technicality might indicate a mild correction at some point in time but broadly speaking gold seems to attract the smart money in the future - especially when talks of uncertainty surrounds dollars future and the volatile nature of commodities in general.
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