Striking gold by cracking the price code
Many of us are repenting having bought gold at around `29,000 per 10-gm barely a year or so ago. The ‘pain’ of having parted with those extra thousands of rupees, gets especially acute, when we hear that the prices could fall even lower.
Many of us are repenting having bought gold at around `29,000 per 10-gm barely a year or so ago. The ‘pain’ of having parted with those extra thousands of rupees, gets especially acute, when we hear that the prices could fall even lower.
At this juncture, the two major categories of gold buyers in the country — the jewellery buyer or the investment buyer — have only one question on their minds. What should I do?
HT’s digs the labyrinth mine of information floating around on the subject and brings you nuggets of golden wisdom.
“Gold prices are down due to low demand on account of an overall weak business environment. Two decades ago, such kind of low gold prices had people queuing up to buy from shops. Now, people wait for even lower rates. This wait (for lower prices) hurts the customer when the prices rise — as they would — even as the shopkeeper keeps sitting on huge stock till sentiment returns. This situation is bad for everybody,” says Rajeev Sahdev, president, Chandigarh Jewellers Association.
“For the next six months to a year, gold prices will stay low. So, those buying to sell in a year must stay away as there will be no significant increase in prices. Over five years, technical analysis suggests that gold prices will rise again,” says Hitesh Jain, senior analyst with Mumbai-based financial services company, IIFL.
Jain adds that this run of falling prices has come about contrary to expectations.
“In 2012, when gold was at a high, there was a debt crisis in some European countries like Spain and others. Technically, this should have sparked an increase in prices; this did not happen. This time, the gold market has had a mind of its own,” he adds. Ludhiana-based Farid Investments MD Sanjay Chhabra says, “Sentiment on gold is weak and people should wait to buy gold as its bottom is yet to come, though it will not fall by much. At this stage, `22,000 per 10-gm is a distinct possibility.”
Jewellers Association Chandigarh president Vinod Talwar says, “Gold prices across the world are in a freeze mode as there is no liquidity (cash) in the market. In India, people have locked their money in property and are simply unable to get out due to the falling prices there too. It’s like a traffic jam where money has been struck. Gold prices may fall by another `2,000 per 10-gm soon, but we hope that this is the bottom.”
HOW THE PRICE IS DETERMINED
Whatever any one might say, Gold is hoarded and is considered an alternative currency. The price is actually determined to meet the future demand today, and thus changes daily, like the value of currencies change with respect to each another.
The price is always relatively high because governments and Central banks around the world, including the US Federal Reserve consider it as ‘unofficial backing’ for their currency.
AN IDYLLIC SYSTEM
In an idyllic setting, currency in circulation is completely backed by an equal value of real usable gold. However, the real world is far more complex and mind-taxing. Over time, even as more gold is mined, much more currency is printed and this leads to demand-supply mismatch and the price fluctuation, which also depends on the strength of the US economy.
Currency reserves and gold lag as the precious metal is relatively difficult to mine and the process takes time, whereas currency can be easily printed and the process is much faster.