Gold wound: Major factors that will help to heal
Zee Media Bureau
Gold prices in the last couple of days have gained some of the lost ground but most analysts are terming it to be a mere correction. However, some analysts are still of the view that Gold bull story will surely rejuvenate in the long term.
Gold nosedived earlier this month, forcing many investors to press the panic button, despite predictions in favour of both bull and bear. The steepest decline in price of gold since 1980 was something that even analysts could not predict. The mind of investors and common man may be clouded with gloomy thoughts but there are still a few factors which may retain the sheen of the yellow metal.
Let’s have a look at few factors that are still vogue enough to retain the sparkle of gold.
Fed bond buying programme
Apart from Cyprus, the expectation that US Federal Reserve is inching closer to ending its monetary stimulus program triggered the steep fall in gold. However, at the current juncture, most experts believe that US central bank can’t detach itself from loose monetary policy and bond buying programme (at least in short to medium term). This could be a good news for gold bull run.
The crisis in Eurozone is far from over meaning that the Euro will continue to remain fragile. This will increase the safe haven appeal of gold. In case of more bad news from the Eurozone, confidence in gold will boost further. IMF in its forecast has also said that the Eurozone will contract 0.3 percent in 2013 and grow only 1.1 percent in 2014.
Though speculation that Cyprus central bank might lead other European countries in selling gold from its reserves to revive economy has eclipsed the sparkle of gold, the looming uncertainty in Eurozone countries will keep gold buoyancy.
The US stock market has given smart returns in the last few months and US economy has also shown some signs of revival. But some economic data released last week show that economy in US is still gloomy and the speed of recovery is far from satisfactory. Though factory and construction activities have rushed forward, growth in many areas mostly remains subdued.
Furthermore, there is no assurance of a major spin in the economic situation of US which means that riskier assets will remain under pressure, benefiting gold in the long term.
Geo-political tensions particularly in North Korea and Middle East still remain to be resolved. Tensions have categorically escalated in Korean peninsula due to North Korea’s approach on its nuclear programme.
The problems in these areas will directly hit the dollar which inversely impacts the value of gold.
Demand from emerging markets
Demands from emerging markets like India, China and the Middle East cannot be overlooked. Rising demand in the emerging markets will keep gold prices buoyant. The demand for gold was at its peak even when prices tested historic high. Hence a decline in price will only add to the rush for gold.
Central banks gold buying
Many reports have surfaced that the stiff fall in gold was a calculative move initiated by some of the central banks in order to buy gold again at a lower price. A few central banks might use the opportunity of the gold price correction to increase their gold reserves. This will lend support to gold.