MUMBAI (Commodity Online): Heads I win, tails you lose. That seems to be the latest mantra of gold vis-à-vis equity markets.
Recently, Indian equity market is on a song and had crossed 18,000 points mark which was last seen over two years ago. At a time when equity market is showing gains normally bullion markets witness a fall. Because, investors shift their money from bullion to equity.
However, this year, it seems investors are acting cautiously. Because, they are not rushing to equity markets as they had already burned their fingers in the 2008-09 crash, which left them badly mauled. The bear hug had left many investors almost bankrupt.
So, during that recession period immediately after the sub-prime crisis in the US, equity markets crashed and the gold made the most of it. And now, when the equity markets are showing signs of a bull run, still gold is making a splash. So, gold is gaining more credibility from the uncertainty in the equity markets.
The recession and its impact had left investors in a state of mind that they are reluctant to leave bullion totally and go for equity. The global economic downturn has taught them how to be cautious. So, at a time when investors have to be cautious gold is the best bet.
When Bombay Stock Exchange benchmark Sensex tested the 18,000 level last week after a gap of over two years last week, people did not rush to the equity market but they played safe and they put the profit from the equity market in bullion. So, in a rare occasion, Sensex and gold witnessed a surge simultaneously.
The last time the Sensex was at this level was on February 27, 2008. The market has been posting gains for the past few sessions on expectations of strong earnings by corporate, who will start reporting quarterly numbers beginning next week.
And, market analysts now say that for a change this time around gold and Sensex may move up in tandem.
In normal situations gold used to fall when Sensex and other global equity markets showed signs of a bull run.
But, caution is the word in demand these days and no investor is ready to dump gold totally. In fact, according to market analysts, Sensex is heading for 20,000 points mark. And, bullion analysts predict that gold will also show gains in the coming months.
But, driving both markets is the common matrix of a weak greenback. Presently, the dollar is weak against the Indian rupee, which is further aiding the rally.
However, global market analysts said the gold will gain next year. Goldman Sachs said it still expects to see gold at record highs next year.
However, the bank reduced its 2011 gold price forecast to $1,350 an ounce from the $1,425 it forecast in December. That is still well above gold's current record high of $1,226.10 an ounce.
The bank said it still expects gold prices to trend higher this year as the precious metal benefits from the overall low interest rate environment, which lifts the appeal of non-interest bearing assets like bullion.
The bank said it expects gold prices to rise to $1,155 an ounce, $1,220 an ounce and $1,320 an ounce on a 3, 6 and 12-month horizon.