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Investors in gold have lost money for the second year in a row. The price of standard gold fell 7.32 per cent year-to-date in Mumbai’s Zaveri Bazaar. In 2013, it had fallen 4.10 per cent. This fall in two consecutive years has happened for the first time in 50 years. Worse, experts believe the yellow metal will continue to lose money in 2015 as well.
“Indications of recovery in the US economy strengthened the dollar, which pulled gold down,” said Jayant Manglik, president, Religare Securities. There is an inverse relation between gold and the US dollar. When the US dollar gets stronger, it takes fewer dollars to buy any dollar-denominated commodity and vice-versa. So, when the dollar becomes stronger, gold prices slip in dollar terms and vice-versa.
The dollar index surged to a nine-year peak in the pre-Christmas trade and strong US data have raised expectations of an hike in the interest rates, early next year. This would further support the US dollar.
“Future movement in gold will depend on the Federal Open Market Committee’s (FOMC) call on interest rates in its upcoming meeting in January. As widely expected, a rise in interest rate will strengthen dollar and thereby, weaken gold. Therefore, gold is likely to fall in the first half of 2015 and recover later. But, depreciation in the rupee will nullify part of fall in gold which may see 5-7 per cent yearly decline in 2015,” said Gnanasekar Thiagarajan, director, Commtrendz Research.
| International Gold | Std Gold Domestic | Silver | Domestic Silver | |||||
| $/Oz | YTD (%) | Rs 10G | YTD (%) | $/Oz | YTD (%) | 1 Kg | YTD (%) | |
| Dec 31, 1997 | 289.05 | -21.39 | 3995.00 | -20.89 | 6.01 | 24.69 | 8300.00 | 19.51 |
| Dec 31, 1998 | 288.25 | -0.28 | 4225.00 | 5.76 | 5.04 | -16.22 | 7500.00 | -9.64 |
| Dec 31, 1999 | 288.00 | -0.09 | 4530.00 | 7.22 | 5.38 | 6.85 | 8225.00 | 9.67 |
| Dec 29, 2000 | 272.25 | -5.47 | 4550.00 | 0.44 | 4.60 | -14.50 | 7720.00 | -6.14 |
| Dec 31, 2001 | 278.95 | 2.46 | 4600.00 | 1.10 | 4.62 | 0.43 | 7630.00 | -1.17 |
| Dec 31, 2002 | 348.05 | 24.77 | 5580.00 | 21.30 | 4.78 | 3.46 | 7980.00 | 4.59 |
| Dec 31, 2003 | 415.45 | 19.37 | 6210.00 | 11.29 | 5.94 | 24.27 | 9575.00 | 19.99 |
| Dec 31, 2004 | 438.45 | 5.54 | 6305.00 | 1.53 | 6.82 | 14.86 | 10655.00 | 11.28 |
| Dec 30, 2005 | 517.00 | 17.92 | 7540.00 | 19.59 | 8.82 | 29.20 | 12660.00 | 18.82 |
| Dec 29, 2006 | 636.70 | 23.15 | 9145.00 | 21.29 | 12.91 | 46.40 | 19430.00 | 53.48 |
| Dec 31, 2007 | 833.92 | 30.98 | 10695.00 | 16.95 | 14.80 | 14.65 | 19560.00 | 0.67 |
| Dec 31, 2008 | 882.05 | 5.77 | 13435.00 | 25.62 | 11.40 | -22.95 | 18100.00 | -7.46 |
| Dec 31, 2009 | 1096.95 | 24.36 | 16690.00 | 24.23 | 16.88 | 48.03 | 27425.00 | 51.52 |
| Dec 31, 2010 | 1420.78 | 29.52 | 20585.00 | 23.34 | 30.91 | 83.16 | 47030.00 | 71.49 |
| Dec 30, 2011 | 1563.70 | 10.06 | 27100.00 | 31.65 | 27.84 | -9.94 | 50965.00 | 8.37 |
| Dec 31, 2012 | 1675.35 | 7.14 | 30490.00 | 12.51 | 30.35 | 9.02 | 57820.00 | 13.45 |
| Dec 31, 2013 | 1205.65 | -28.04 | 29240.00 | -4.10 | 19.47 | -35.83 | 43800.00 | -24.25 |
| Dec 26, 2014 | 1193.75 | -0.99 | 27100.00 | -7.32 | 16.08 | -17.42 | 37980.00 | -13.29 |
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Source Bloomberg/IBJA | ||||||||
Another key factor is the crude oil. At $60 a barrel, crude oil prices are down almost 50 per cent this year due to falling demand from major consumers including China and surplus supply from OPEC (Organization of the Petroleum Exporting Countries) members. Gold being considered a hedge against inflation, lower crude oil price obviates the need to hedge against inflation. The prices of standard gold were at Rs 27,100 for 10 grams. In 2014 (calendar year), gold price decline in rupee terms was severe than the fall in dollar terms. Reason: While the rupee depreciated during 2014, a sharp fall in the delivery premium quoted on gold in the open market from year-ago levels resulted in prices falling sharper than the international market. In 2013, the fall in international gold prices was 28 per cent. Spot gold prices in London fell by a mere one per cent to trade at $1,193.75 an ounce as on December 26, compared to $1,205.65 in end-2013.
Globally, investors’ wariness towards gold was clearly observed from the drop of 712.9 tonnes in the holdings by SPDR gold share, the largest gold exchange-traded fund – its lowest level since September 2008.
The silver lining, however, might come from silver. “With the recovery in the US economy, industrial demand of silver especially from electronics sector will surge. Therefore, we are not too much bearish towards silver,” said Thiagarajan. In dollar terms, silver posted a decline of 17 per cent to $16.08 an ounce in 2014 after a steep fall of 36 per cent in the previous year.
The white precious metal fell 13 per cent in rupee term to close at Rs 37,980 a kg in Zaveri Bazaar, after a severe fall of 24.25 per cent in 2013.
