LONDON (Commodity Online): Who says gold is the safe haven for investors now? It seems, if you take into consideration the present scenario in the global markets, gold is the most unsafe investment now.
As is the tradition, gold thrives whenever there is a crisis or tragedy. This time around, it was Greece financial crisis, Spain and Portugal dilemma and the Iceland volcano mess and the gold ETFs fraud unraveled by the US commodity exchange regulator. Even as analysts made a big fuss about the gold's safe haven importance at this time and the metal surged to over $1,200 per ounce level riding on this tragic news, there are strong reasons to believe that gold's safe haven image is set to dent in the coming days.
There are indications that the high gold prices won't last long. As more and more people have become aware that the high prices of the yellow metal are not going to last, they are slowly shifting to other commodities which offer a guaranteed profit much more than gold. If you take the case of China, people started looking for other options like diamonds and platinum instead of gold as the cost of the metal is very high.
Spot gold had crossed the $1,200 an ounce threshold last week, the first such close above the psychological level since December 2009 when report of 200-tonne IMF gold purchase by India's Reserve Bank of India filtered in.
According to reports from India, these high prices kept people away from bullion market and jewellery shops in the country.
With prices hovering around Rs 17,000 for 10 gm, large sales are unlikely to happen in India now even on Akshya Tritiya, the auspicious day for Indians to buy gold.
The World Gold Council (WGC), however, remains positive about demand for gold in the upcoming festive season on the back of firm prices that have bolstered consumer confidence.
For the past two years, Akshaya Tritiya has been seeing dip in sales of around 10 per cent. From 55 tonnes in 2007, it came down to 48.9 tonnes in 2008 and 45 tonnes in 2009. On May 7, 2008 gold price stood at Rs 11,800 per 10 gm, whereas it was Rs 14,700 on April 27, 2009.
At Rs 17,000, gold prices will have moved up by 15 per cent this Akshaya Tritiya.
So, jewellers are promoting platinum year. Chennai-based GRT Jewellers has launched the first ever platinum coin.
Meanwhile, investment bank Société Générale is calling gold down to below $800 by the end of this year as a stalling in investment is unlikely to be offset by an equivalent recovery in jewellery demand.
The fact that prices fell very sharply when investment faltered over the turn of February and March is cited as a potential precursor to more of the same later in the year.
The latest quarterly Commodities Review from the bank notes that in late March the major Exchange Traded Funds held 1,589 tonnes of gold, which was a twelve-month increase of 656 tonnes (since then they have added a further 14 tonnes), but that more significantly they had acquired 390 tonnes since the turn of investor appetite in mid-January. Between then and early February there were only nine days on which there were net redemptions and six of these were concentrated between February 24 and March 6. During that period, just four tonnes were sold from the funds, but the loss of this inward investment momentum took 10% off the price over that period plus a further three days.
Noting that investment activity is clearly not the only price driver in the market, the bank points out that it is currently one of the few bullish influences. Absorption of 198 tonnes into the funds in the first three weeks of February accompanied a price increase of $80 or 9%, and then flat activity in the two following weeks saw that gain wiped out, highlighting the importance of sustained investor purchasing if international prices are to remain high.