Gold fad is back

In the presences of inflationary pressure, along with an uncertain global economic scenario and growing political turmoil in the Middle East, it is difficult for the yellow metal to live far away from the bull market. Gold, after being quiet during January, joined the noisy commodity global market in February.
Benefiting from violence in the Middle East, the yellow metal crossed $1400/oz last week strengthening by around 6 percent in February, which is the highest monthly gain since August last year. In addition to gold and oil, nervous investors are also seeking refuge in US bonds and currencies, such as the Swiss Franc and Yen.
In sharp contrast to oil prices, analysts expect that signs of improvement in the global economy and monetary tightening in developing countries are likely to cap the gold price growth rate. Gold has gained by around 1.5 percent last week and, at the same time, oil prices have jumped by around 7 percent.
Similarly, holdings in the SPDR Gold Trust, the worlds largest gold-backed exchange-traded fund fell to an eight-month low of 1211 tons at the end of last week.
Although gold prices are hovering below the record high prices of $1421/oz, any further escalation in political turmoil in the Middle East could lift prices to a new record high.
"Gaddafi still has enough firepower to create chaos and plunge the country into civil war," said Ong Yi Ling, a Singapore-based analyst with Phillip Futures Pte Ltd, to an international news agency, adding that high oil and gold prices may be warranted until the situation in the Middle East shows some definite signs of improvement.
Besides, growth in farm income, on account of higher agriculture commodities prices, would likely support market appetite for gold in many Asian countries, primarily, India, after the Rabi crop harvest season.
Although the global supply of gold is likely to resume modest growth on the back of rising investment on gold exploration, low or negative official sector sales would likely keep pressure on gold supplies. Total mine supply increased by 9 percent to 2543 tons in 2010, while total gold supplies surged by 2 percent to 4108 tons, according to data complied by the World Gold Council.