Rise in Gold Prices Reason: Price Hike In Gold
International market has experiencing surge in Gold Price since a year. On February 11, 2010 in London gold market rose to a near one week high at $ 1,090.85 an ounce. This surge implies the following reasons.
(1) Downfall in the value of dollar.
(2) Rising demand of gold jewellery.
(3) No new reserves of Gold are being searched.
SPDR Gold trust said that gold could test new high in the coming months if the dollar remained on a week trend. It is a quoted as a consequence of 2008 economic meet down 2010 is said to be much more economic driven so dollar would not show influence. It will be more closely aligned with supply and demand.Looking into 2010, golden is not likely to recover in the first few months due to prospects for the dollar to fail to rise significantly. The huge US fiscal deficit will keep the dollar pressured while problems in housing loan repayments will weigh on bank’s financial health. The Federal Reserve is not expected to raise interstate. All these factors are dollar negative, which in turn benefits gold. A weak dollar boosts gold’s appeal as an alternative asset and makes dollar priced commodities cheaper for holder of other currencies. The economic crisis from late 2008 boosted gold, which investors bought as a safe heaven asset. Gold is also bought as a hedge against inflation, which erodes the value of paper assets
“The chaiman of Barrcek Gold crop the world’s largest gold Producer, said while gold prices may be volatile, its upward climb was not over.”
Gold’s popularity returns because investor fear inflation and sovereign downgrades and out look of paper currency in general. Gold prices jumped 2 percent in euro terms to a 796.57 euros on February 11. The world’s largest gold – backed exchange traded fund, SPDR Gold Trust said that its holdings stood at 1,111.922 tons. Gold also tends to track crude prices, as the metal can brought as a hedge against oil led inflation.
Global investment exceeded jewelery demand last year for the first time since 1980. In third quarter of 2009 gold demand or the mainland soared 12percent year on year to a record high of 120.2 tones. Glaringly, international arena does not show a surge in Gold demand but certain countries rush for it. For example in china it rose eight percent to 93.5 tones while retail investment rose a staggering 30% to a record 26.8 tones. The economic stability of the state also enables people to indulge themselves in such 14xury. Additionally, the role of traditions cannot be ignored. Albert cheng, Far East managing director for world Gold council said,
“The chinese have a deep affinity to gold which dates back thousands of years. No marriage will be ideal if the bride does not revieve gold jewellery”
Similarly India is expected to overtake china in this regard as it seemed to be a good buyer of Gold.
Most important, gold looks attractive to the government too. Last year Beijing revealed it had been buying gold since 2003 increasing its holdings from 600 to 1,054 tones. Recently India also bought gold from IMF. The reason for this buying of gold have following reasons.
Every state in the world keeps its foreign reserves in the form of foreign currency i.e $, Euro and pond. Gold is also taken as an asset in foreign reserve. Taking it as an asset was a tradition, very popular in the past that declined after the surge in value of dollar. Similarly the decline in the value of dollar give rise to the demand of gold as a part of foreign reserves.
Moreover, India & china bought is to increase their foreign reserves but IMF sold it for another reason. IMF help any state by two ways i.e SDRS (Special Drawing Rights) and ODRS (Ordinary Drawing Rights). In SDRS IMF have its special currency and Gold where as SDRS consist of $ and L. on that juncture, IMF was lacking holding of dollars so it sold its gold to India and china to increase its reserves in order to monitor other states.
The other element in the foreign reserves is international bonds. China is having world’s largest foreign exchange reserves at $ 2.27tr has largely invested in US government bonds. Focussing on US economy China is expecting to buy more gold internationally to diversify its assets.
On supply side South Africa’s statistics office said gold mine out put fell 8.8 percent in December in volime terms. The republic was the world’s 3rd largest mine produces in 2008 with out put of 233.2 tons. But South Africa’s firth biggest Gold producer DRD – Gold reported a 4 percent use in gold out put for the quarter to December and a retune to profile owing to lower operation cost. Global mine supply rise modestly including a 3.9% year over year gain, but these gains are unlikely to have a big impact on gold prices.
Additionally many mines in the world need to be discovered, that produce Gold. Many of them are not explored explicitly.
Recodick, a place in Balochistan, Pakistan, is rich in Gold and copper. It is estimated that it contains reserves of $ 70bn of Gold. During Former President General Pervez Musharaf, the tender of this Gold Treasure was given to Canadian Company named Chelian. On the condition that this company would give 20% share to federation and flew 80% to Canada. In current regime, the Provincial Government of Balouchistan had cancelled this contract.
Thus according to Reuters gold is heading for its ninth increase in as many years. Its not only gold but sugar, coca, copper and oil also saw surge in demand and prices, describing 2009 as a year of commodities. Some experts predict a long term rise in international price while other fear that prices could fall sharply and Gold may turn weaker towards the end of 2010 depending on economic data and views on the US interest rates. Moreover strength of US currency cuts gold’s appeal as an alternative asset and makes dollar priced commodities more expensive to holders of other currencies.