The mainstream media is saturated with wayward predictions and bullish views on gold amidst in the back drop of the ongoing gold rally. Will gold really spurt as they predict in a particular time frame? Some extremely bullish forecasters foresee the possibility of $1400 to $5000 and above per ounce within a particular time frame.
Bullion pundits mainly cited key influential factors such as inflation, deflation, economic crisis, Euro, Dollar, debt etc, to corroborate their arguments. In fact, how much influence those factors can exert on enabling a continued rally is an issue that needs to be pondered.
We have been hearing news over the unusual rise of gold from the bullion pundits since the economic crisis broke out in US. Many pointed out gold as a safe haven investment or hedge against the crisis. Of course, gold is one of the major hedges among other commodities.
Gold would have touched nearly $3000 per ounce, if we had tracked out the predictions from the very first period of financial break down. Unfortunately, the yellow metal could reach only a historic high of $1,254.50 in the last week. This,perhaps, shows the lack of awareness of global trends by the experts or are they predictions for the sake of some vested interests.
The impact of key fundamentals of gold We know that gold market is driven by some fundamental strategies related to the prevalent inflation and deflation threat along with US dollar, debt and Euro zone crisis. Look into these threats, inflation is one of the key factors pushing up gold prices. US is relentlessly printing dollars to overcome the gruesome economic bubbles and subsequently it had to pay heavy price for it by way of bailout packages.
The dollar's intrinsic value declined sharply; until it being called the worst currency in the world. At that time, Euro gold has garnered modest gains. Investors dumped dollar and went behind ever shining gold. At that time too, gold could not rally beyond a particular value. Euro value of gold continued to be high at that time. Now, the tide has changed against the Euro favoring the dollar leading to higher gold prices in dollar terms. But to what extent this upward trend is sustainable?
Entire governments are on the brink of insolvency; just take a look at Europe. Reuters reported, The U.S. debt will top $13.6 trillion this year and climb to an estimated $19.6 trillion by 2015, according to a Treasury Department report to Congress.
As for the case of debt, it clock just tripped a cool $13 trillion, and US is going to tack on another $600 billion by the end of the year. We are in deep trouble folks, and gold is trying to slap us in the face to wake us up! Gold is not a commodity; it is money. Just ask the folks in Greece, who will probably be leaving the European Monetary System, if they would like to hold gold instead of the Greek Drachma?
In a recent Bloomberg story, Bill Gross, who runs the world's biggest mutual fund, calls what we are facing the debt super cycle trend. Gross suggests, . . . U.S. economic growth won't be enough to support the borrowings if real interest rates were ever to go up instead of down.
We are convinced by all these strategies and the impacting inputs of gold's movement. All above key points are being implicated to Gold ETF, stocks and futures. What about the bullion physical market. Will ordinary people accumulate jewelry on the anticipation that God Futures would go further up? Do you think people buy gold jewelry at higher prices?
The bullion experts have ignored the physical market of gold across the globe. Gold sales in India, the largest gold consumer in the world, have declined sharply since the abnormal movements of gold prices.
Indian gold market scenario India, despite being the largest consumer of gold in the world remained almost silent on the buying front as the yellow metal reached record high prices.. Speaking to Commodity Online, Suresh Hundia, President, Bombay Bullion Association (BBA) said, There is no demand either from jewellery side or from the investors' side at these high levels of prices. Most of the investors have come out to cash on the fiery prices and made some profit booking.
According to the market analysts, the upbeat mood in gold prices was mainly driven by the global factors; hence there are least chances for a fall in local demand to affect prices in the short term. I don't see any impact on gold prices even if the local demand has come to a standstill. It is true India is one of the largest consumers of gold but the factors affecting prices are not governed by local demand. Rather they are more global like turbulences in European Union and Dollar's appreciation against Indian Rupee, said Hundia adding that there doesn't seem to be a major break in the price escalation and the prices may continue to go upwards further for some time.