Once upon a time, gold was the apple of every investors eye. As economic times became tougher and tougher, gold became dearer and dearer...Until recently when gold prices started taking a dive.
Traditionally, gold has got much attention from investors because of its safe haven appeal during times of economic adversity. However, with signs of key global economies, especially the US improving, it seems like golds recent southward journey will continue for a while.
An improved index of pending home sales in January - the highest since April 2010 - helped edge down prices of the precious metal, as did other signs of an improving US economy, such as improvement in orders of durable goods.
And even though gold gained the most in three months after Federal Reserve Chairman Ben Bernankes support of monetary stimulus, a very recent heading in Reuters read, "Gold heads for longest run of monthly drops in 16 years."
Having been in the red for five months at a stretch now, golds losing streak has been the longest since late 1996 to early 1997. Upbeat US economic data, with a boost in business spending helped contribute to the rise. Similarly, Italys bond auction went well despite an inconclusive election result, appeasing fears that a political deadlock could affect Europes second-largest sovereign debt market.
And so, the safe haven premium that has been attached with gold for quite long began to wane. "Golds sentiment remains fickle, as it lacks a significant catalyst to propel the rally into the 13th year and people are more sensitive to even slightly bearish signs," Chen Min, an analyst at a Shenzhen-based brokerage company was quoted by the Reuters yesterday.
However, before jumping to sell gold futures, investors must be wary of USs fiscal crisis and consequent extension of monetary easing, which may boost interest in the precious metal again. And yet, the Indian budget will also be a critical factor since any curbs on gold imports will mean a tarnishing of the metals luster in global markets.