The metal is nowhere near crashing, as outlook on global economy remains bleak.
Over the last two days, gold has corrected sharply. What has happened is very healthy and much expected, claim experts. Any asset class that has run up 20 per cent in less than a month (35 per cent year-to-date) is sure to correct. However, this correction should not be seen as a defining trend, as the precious metal will be in demand till the developed economies don’t start growing.
Gold is in a secular bull run and this is expected till the world returns to normal. With US equities and bonds fetching very poor or nil returns, it is the only asset class people in the developed parts of the world have. Says Jayant Manglik, head of commodities at Religare, “Whether it’s from the point of view of liquidity or returns, gold appears to be the best asset class. If QE3 comes into effect, it will drive up inflation even more, making gold an attractive hedge.”
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Anyone interested in understanding what’s happening to gold should refer to the Great Depression of 1929. Historically, in some form or the other, the US has followed the gold standard, a monetary system under which a country’s standard unit of exchange or currency is pegged to, or defined in terms of a set price for gold. Soon after the stock market crash of 1929 and the ensuing bank failures, Americans began hoarding gold. In fact, they started hoarding so much that in 1933, President Franklin D Roosevelt forbade them from owning more than $100 worth of the metal.
A similar story seems to be playing out now. Analysts say the recent correction in gold is healthy as it ran up substantially after the US downgrade. To curb speculation, on Thursday, the CME Group raised margins on gold futures by 27 per cent on the lines of Shanghai Gold Exchange and Hong Kong Mercantile Exchange. Explains Hitesh Jain, research analyst at India Infoline: “The forthcoming festive season will benefit gold. The current dip will only increase demand.”
The new target for gold is $2000/ounce (Rs 30,000/10 gm). According to reports, ANZ has raised its forecast for gold prices, expecting them to peak at $2,200 in the second quarter of 2012, against a previous forecast of $1,800
