Fall In Gold Prices Yet To Bottom Out , Say Traders
The current downward spiral in international gold prices and the commensurate fall in domestic markets is irreversible and yet to bottom out, claim gold traders.
They feel that the fall will be briefly arrested at the $280 per ounce-mark. At that level, they say, several international miners will find it difficult to break even and may be either forced to cut back production or lower wage levels substantially.
Once the bears in the market overcome this hump, the floor price could be anywhere above $200 per ounce, hazard traders. International gold prices dropped from about $384 in July 1996 to about $323 in the same period in the current year and have now notched a 13-year low at $281 per ounce.
With the government recently allowing unlimited import of gold, domestic prices too are likely to see a commensurate depression.
It is another matter that domestic jewellery manufacturers got shortchanged in the present free fall. Even the Indian consumer, who is rushing in to take advantage of the current drop, is yet to realise that the market has not bottomed out.
According to the World Gold Council, at the end of September itself, domestic demand had crossed the record 508 tonnes notched in 1996.
The present downward spiral reflects a structural change at the global level. For one, the low level of global inflation is for real and central bankers need no longer seek a backstop facility or a safety cushion in gold reserves.
As a result, the selling wave by central banks kicked off by Israel in the early 1980s has spread. Earlier this year, it was Australia and more recently, the Swiss National Bank has decided to offload 1,400 tonnes from its stocks. Secondly, the indestructability of the yellow metal implies that gold stocks continue to pile up despite declining demand.
Essentially, the system is safer so that role of the system hedge like gold is marginalised. That is why when you get all these flows of money between bonds, currencies and equity, gold is not even in the game.
If it had even one foot in the game, you would have gold prices going beyond $1,000 one day and $100 the next day, because it is so small a market relative to all the others, said Andy Smith, precious metals analyst for the Union Bank of Switzerland in an earlier interview with Business Standard.