Gold loses sheen for 3rd year; investors eye other assets

Sheds over Rs 1,000 per ten grams in 2015; Silver fares no better with a 8% dip

Set for a third year of downtrend, gold has lost further sheen in 2015, with a fall of  Rs 1,000 per 10 gm in price, as investors looked for other asset classes and the government sought to monetise  holdings with households and institutions.

Silver has been no better, with a dip of eight per cent in  price. Gold prices have dipped about five per cent this year. Extreme volatile in the rupee’s value and uncertainty around the long-pending rate hike in the US added to the roller-coaster ride for gold through 2015, while headwinds from a slowdown in China added to   worries.

Subdued domestic demand, along with fear over slowdown in global consumption, further dampened the sentiment, while an improving outlook for equity markets led to investors looking for asset classes with better return prospects.

Measures to curb gold imports for most of the year and the government’s ambitious gold monetisation scheme to encourage households and institutions also had their own impact.

After beginning the year at around Rs 26,700 per 10 gm,  gold has fallen to Rs 25,500.

Silver prices have fallen  Rs 37,200 a kg to Rs 34,300.

The tumultuous rise and fall of the yellow metal's price badly affected investment demand, while a weak monsoon appears to have hit  rural income levels.

Heavy outflows from gold exchange-traded funds (ETFs) also played a role in driving down both prices and investor’ expectations. Relaxations in stringent gold import norms by both the government and the Reserve Bank of India towards the end of the year have failed to support prices so far.

India’s gold demand, which normally see its strongest spike in the fourth quarter due to the busy wedding and festival season, could not see much revival on higher domestic inventories. Import tumbled 36.48 per cent to $3.53 billion in November, while silver  dropped 55 per cent to $285.01 million in the same period, according to commerce ministry data.

In the very beginning of the year, gold had managed to reclaim the psychologically significant Rs 28,000 milestone and hit a yearly high of Rs 28,215 in mid-January amid stock market turmoil triggered by the Greece political fiasco.

However, the rally seemed short-lived and the silver prices also got hit by the spillover. A collapse in global commodity markets, coupled with a slowing world consumption, added to the worries as the year progressed. By July, gold prices crashed below Rs 25,000, to a low of Rs 24,590, its lowest  since 2011, amid a global commodity market meltdown.

Continuing on roller-coaster ride, gold prices returned to a high of Rs 27,250 in August after a seven-week uninterrupted descending trend, the longest retreat since 1999. However, this short rally appeared driven  largely speculators and any further jump remained elusive even during festivities and weddings. Gold prices are now 25 per cent away from the lifetime high of Rs 33,790 in August 28, 2013.

This is a third straight year of a downward path for gold, which remained the most favoured asset class for more than a decade, by outperforming all other investment instruments in India between 2003 and 2012.

In global markets also, gold witnessed a turbulent ride and remained overshadowed by the dollar strength. It peaked above the $1,300-mark an ounce at the beginning of the year, but witnessed a catastrophic sell-off soon after and crashed below the crucial $1,100 level to hit a five-year low of $1,046 toward the year-end after Federal Reserve's historic monetary tightening.

Industrial metal silver also crumbled to hit a low of $13.884 an ounce mark after the China's commodity driven growth took a big reversal. It had climbed a high of $18.36 in early January.

The Presidential election in the US and the Europe referendum in the UK in 2016, China's continuing economic wobbles and the big cyclical downturn in commodities may pose a fresh set of challenges for the yellow metal next year.