Golden run ends

Print edition : April 05, 2013
There are clear indications that the gold rally is coming to an end after 12 long years.

Strong signals

There could have been no clearer signal than the one from China that gold’s wonderful 12-year rally is all set to end. On March 13, Yi Gang, Vice-Governor of the People’s Bank of China, told the media that there would not be any massive addition to his country’s gold reserves of 1,055 tonnes.

A couple of days earlier, billionaire investor George Soros cut his holdings in one of the biggest gold-backed exchange-traded funds (ETF), by 55 per cent. The $8.5-billion Soros Fund Management cut its holdings in the ETF to 600,000 shares, worth some $97 million. This was down from the 1.3 million shares, worth over $225 million, it held during the end of September 2012.

Prices dip

Gold prices have dropped by 5 per cent this year. A clear indication that gold has begun to lose its charm came in the World Gold Council’s demand-supply data for 2012.

Although demand for gold rose to a record high of $236.4 billion in terms of value, the demand in terms of volume dropped by 4 per cent. It was the first time since 2009 that the demand for gold in volume dropped.

Waning Indian interest

In India, demand dropped 12 per cent in tonnage terms, again a three-year low. As gold prices ruled above Rs.30,000 for 10 grams in 2012 and the rupee turned volatile against the dollar, Indians turned cautious on buying gold. Further evidence of waning Indian interest has come from the Forward Market Commission’s data. They showed that the value of gold trade dropped by 23.28 per cent to Rs.70,000 lakh crore up to February 15 in the current fiscal.

Globally, investments in gold through ETFs increased by 51 per cent in 2012, but there were clear indications of waning interest as they dropped 16 per cent in the fourth quarter. This year has brought more grief for the precious metal.

Gold has found it tough, for technical reasons, to climb the $1,900-an-ounce mark after it hit a record $1,921 on September 6, 2011. (One ounce is approximately 31.104 grams.)

This year, gold has dropped below $1,600 and is finding it difficult to cross the mark.

Other avenues

Signs of an economic recovery, particularly in the United States, are making investors sell gold and opt for riskier assets such as equities.

In India, the government is trying to discourage customers from buying gold as it is leading to serious issues such as a widening trade deficit. The Centre has increased the import duty on gold and is trying various other means, such as gold-backed investments and saving schemes, to discourage imports and physical buying.

The Finance Ministry has also brought in a new rule under the Money Laundering Act, wherein jewellers will have to get the details of customers buying gold for above Rs.50,000.

As is evident from the emanating signals, gold is really up against the tide and is in for a rough ride.

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