In our culture women tend to invest than savings in gold, while men try to hedge against inflation by investing in dollars. Demand for gold in the domestic market is on the decline.
Import numbers also confirm decline in orders, due to surge in the value of yellow metal in the international market.
Last week, gold price crossed Rs 10,000/- per 10 grams mark. If Pakistan had a developed Bullion market, this would have been the breach of some technical resistance on the charts. If we look back to compare the value of gold against Pak Rupees, about a two decades ago when gold hit the highs of $850.
One dollar would roughly fetch Rs 9.90. Now gold has hit a 24-year high of $530, whereas, by exchanging $1 we get Rs 59.80. This means the value of gold against Rupee is higher by almost 4 times.
For comparison sake when gold hit the highs of $850 in the 80's, then the value of Copper was 1.30 per lb, which was considered high, today copper is trading at $2 per lb and is likely to make new highs. So does that mean gold could rise by 50 percent, only time will tell? All time record high for gold futures was in the 1970's at $873 due to oil shock and the US recession.
Global demand for metal is on a constant rise. But major demand is from surging Asian economies. Gold, Platinum, Silver, Palladium, Copper, Zinc and Aluminium are all testing the new highs.
Of all the metals, gold is in the limelight. According to legendary gold speculator Doug Casey, gold was never considered for speculation purposes. People had not accumulated gold to make them wealthy, but because it was convenient, and a liquid way to store the wealth.
There could be many other answers to why gold is attractive. It is durable, which means it won't evaporate. It is divisible, unlike diamond, which if split, its value may be destroyed.
It is convenient, can be carried by the owner. It is consistent, 24-carot pure gold always exist. It has intrinsic value, there is industrial usage every year and lastly governments cannot create Gold.
Since 1971, when the US government was unable to keep the price at $35, speculators were attracted to it. In the era of 70's, gold climbed from $35 to hit $850 and in 1980's the world was stunned by Soviet invasion of Afghanistan in Christmas 1979, because in 1978 Soviets signed a bilateral treaty of co-operation with Afghanistan.
Technically, after 21 years of bear market, gold is back in demand. Analysts are of the view that we are in a Bull Run.
In last two-and-a-half decade most of the buying was done physically with little interest in future contracts. Suddenly, oil-related inflation, buying by hedge funds and Central bank purchase to increase their reserves have been making gold dearer, though European Central banks, signatories of Central bank Gold agreement, have sold 100 tonnes since September.
Japanese are also thought to be buying bullion aggressively. But two other factors, Petro dollar buying from Middle East and demand from India during this quarter due to wedding season that starts from November until February and Hindu religious ceremony of Diwali were mainly responsible for start this bull rally.
Estimate suggests that the size of the global gold contract is merely 3 percent of UK's equity market. It is the global liquidity and physical demand, which is chasing gold.
All indicators are suggesting that current demand for gold exceeds supply due to various factors. Inflation and oil is largely blamed for the gold run. We may soon hear Fed completing its rate hike cycle, as more aggressive stance would start slowing down the economy. We also expect dollar to soon bottom out and weaker currencies against the USD would help to start picking up the weaker economy.
When oil was testing the $70 levels in August, gold was below $450, today oil is struggling to breach the technical resistance level of 63.80. So are we going to see the reversal in gold prices anytime soon? Gold may be at risk to long liquidation and let me share a bit with the readers that on December 27, 1979 gold broke through $500 level and on January 18 it hit the peak of $850. In early March 1980, it fell below $500 level.
However, the market is now different to what it was 25 years ago, investors have more choice. Silver was chasing gold and overtook it in percentage terms hitting $50 per troy oz. Today silver is $9 per oz.
Let us explore that what could be the other influencing factors supporting the metal. According to World Gold Council 3rd quarter report, demand for gold in comparison to last year for same quarter, is up by 7 percent, which the currency rally suggests may see bigger jump. Central bank is buying for reserves assets, as they can invest in government securities up to a certain limit. Hedge funds are buying gold against inflation and speculation is on the rise. Gold sellers are not keen to offload their inventories. Number of gold future contracts is almost double if we compare from last year while strong physical demand is another major.
There is frenzy for all commodities and not only gold. Copper is in big demand. Chile the largest producer of copper has pulled down its production levels saving it may not be able to meet its earlier commitment.
Demand for platinum and palladium has risen, which are used in jewellery and exhaust emission. Both are crucial component for anti-pollution system and motor vehicle. Platinum, a popular jewellery is followed by palladium and the demand is on constant rise, since the price of palladium is four times cheaper than platinum. Currently platinum is traded at $1008 per oz. Palladium is $300 per oz.
Technical for gold suggests that it has formed a strong base at $450 and only break here would end this bull run. On the upside break of $555 would encourage for $578 or possibly $620.
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