Gold’s making news again…in the physical markets, its touched 21000 INR / 10 grams, (1423 USD / ounce), which is a historical high for gold. In dollar terms, it has given more than 25% returns in the last 1 year (last December, around this time, Gold was at approx 1135 USD / ounce - giving a return of nearly 290 USD / ounce). Take a quick look at how Gold has moved in the last 1 year:
Even at these levels, the best trading strategy on Gold that comes to my mind is - "Buy, Breathe, repeat...". There are a lot of nay sayers in the market who are (and have been ever since the resumption of the bull run) predicting gold tops, but gold just retraces back 1 step, and then moves forward 2...signs of a healthy up-move.
Reasons are not so difficult to fathom - fundamentally - its Uncertainty, which is mostly bullish for gold. European crisis is keeping a lot of investors edgy, for if Eurozone trouble gets deeper, it'll spread to US and the rest of the world as well. Currencies are no longer the IOUs they were a couple of years back. The confidence on Euro and Dollar has come down drastically, which is also reflected in the higher volatilities of these currencies against others. Brazil, China, Russia, Iran, and some of their trading partners are trying to move trading volumes to their local currencies. IMF has started taking money in Gold...Ireland is temporarily out of trouble, but people are holding their breaths for the next country in Europe - Portugal / Spain / Italy are the among the best guesses (wont' rule out punters punting on this also !).
US is no better. An uncomfortable chunk of people, who've taken home-loans and lost jobs in US are defaulting on their payments. Banks worldwide are taking ever increasing hits on their portfolios comprising of either home-loans / bonds issued by banks who have massive exposure in US housing industry. Rising unemployment, nearly no growth, and uncertain future of house prices is not making things any better in US. Even people who can afford to buy a house there, are waiting to see how low the prices can go...supply from builders is coming in, pushing prices down, and to top it all, banks are putting thousands of homes every month on the market to recover their loans partially.
The US government is releasing money that can be used to invest in markets, give out as loans and used for capital investments, but with little success. Whether or not Tax cuts (introduced during the G Bush regime) should be extended is being fiercely debated...if its extended, Government's fiscal deficit will increase at a much faster rate (destabilizing the bond markets, pulling down the rating and currency), and if it doesn't, people need to pay more taxes, leaving them with even lesser money to spend, resulting in lower demand for goods and services - leading to economy contraction.
The local state governments in US are also reeling with debt, and are not sure if they'll be able to pay back all of it. In their efforts to cut costs, they are reducing people on state rolls, like police, teachers, park-attendants, cleaners, even releasing inmates early from jail ! But is it going to make things better - well, if defaulting in Feb is better than defaulting in mid-Jan, then yes. I'm not saying they are going to default in Jan / Feb, the point is, they cannot come out of this mess without huge borrowings from central government, which will then print money and buy bonds from these states, which will stoke up inflation, and bring currency down...There's just no easy way to get out of this mess for the US.
Real Estate bubbles are an issue in Australia and HK as well, and both economies are slowing down. With China bent on increasing interest rates and cooling the growth off a little bit, commodity exporting countries like Australia are likely to take a hit on their growth as well. Other SE Asian economies, meanwhile, are showing signs of slowing down.
Central banks, on the other hand, continue to hoard gold. China has bought over 200 tons of gold in the first 10 months of this year compared with about 45 tons bought in the entire last year and 454 tons bought in the last 7 years. And that's the information that's publicly disclosed. India and even Bangladesh central banks also continue to buy the yellow metal. Festivities are just round the corner.
With so much of uncertainty on various fronts, right from currencies, to growth, to economic and geopolitical stability of some of the world's most advanced countries, Gold has no other way to go but up....till the crisis at various levels is played out completely.
3 comments:
Are we moving towards gold as a world currency in the future? Many countries hold US treasury bonds. Won’t a country like China that has lent so much to the US, push for a world currency? Especially if the US is just going to print more money to buy up the bonds !
Probably far-fetched, but then people scoffed at the idea of a European currency as well, at one point of time, didn’t they?
While gold is widely accepted as a good alternative to any currency, world is not likely to move freely (stealthily, maybe) to gold standard. Its precisely because large economies like Japan, China, EU countries, hold humongous amounts of US bonds...so if they show clear interest towards dealing in Gold, US Bond prices are going to crash...and so will the M2M value of all cental banks' holdings. So right now, countries are stealthily diversifying their holdings into gold and other currencies (e.g. China, instead of buying gold from markets, which will be widely known and reported, is quitely buying gold mines worldwide, and marking down their potential reserves). But a good question nevertheless...keep the comments flowing in...Thanks.
(PS: markets are still not sure of longer (even medium) term sustainability of Euro !)
it is good
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