Unlike other metals whose market prices are purely a function of consumption and availability, it is not that simple to predict the price of gold as a confluence of factors, other than consumption and supply, influence price movements and have been causing some volatility in the yellow metal market.
Gold has already gained much from growing pessimism about the US economy in the past few years. Earlier this month, the yellow metals prices touched a record high of $1,421/ounce on the back of monetary easing.
Lately, a combination of positive US data - jobless claims falling below expectations, to the lowest level in more than two years, along with improvements in consumer sentiment and spending, is likely to put pressure on gold prices.
Monetary tightening in China is also causing a pullback in gold prices. Peoples Bank of China announced last Friday that it would increase the banks reserve requirement ratio by 50 basis points from November 29, a fifth such hike this year, signaling further monetary tightening ahead.
Interestingly, whenever the US economy shows signs of improvement and market dynamics start turning against gold, some other fiscal concerns across the globe make a sudden foray to support the yellow metal. Lately, renewed unease about sovereign debt in the eurozone once again came to the rescue, compelling investors to flock to precious metals.
Although, the market believes that the Irish fiscal crisis would not help the metal the way the Greece issue did, prevailing tensions in the EU that the fiscal turmoil might spread to other debt-laden economies, Spain and Portugal in particular, would continue to keep gold demand intact.
The extent of anxiety in EU sovereign markets can be gauged from a recent statement by the German Chancellor Angela Merkel. She commented that the euro was in an "exceptionally serious" situation.
Consequently, recent events have led to a strengthening of the dollar against the euro. the Euro fell to $1.33 on Thursday from $1.39 at the start of November.
In a nutshell, market sentiments are likely to remain mixed, with some analysts predicting gold to further shine on the back of sovereign debt issues.
On the contrary, there are many who believe that the rally may soon lose momentum. Among them is Tom Pawlicki, a precious metals and energy analyst at MF Global Holdings Ltd.
"Gold prices may be nearing a short-term top. We wouldn anticipate safe-haven demand lasting much longer," said Pawlicki to international media, adding that the metal is forming a "head-and-shoulders" price pattern, which may indicate a further decline.
Comments
Comments are closed.