MUMBAI (Commodity Online): Gold and silver prices changed directions very sharply throughout 2011 but concerns about Eurozone debt crisis and slow recovery of US economy led to investors scrambling for dollar as a safe asset than gold leading to the current bearish trend, according to Prithviraj Kothari, Director of Riddisiddhi Bullions Ltd.
According to Prithviraj Kothari, the following factors will be bullish for gold in 2012:
1. Given the stresses the European monetary system is experiencing, we expect the rally to continue. Few corrections are always expected.
2. The world has become a scarier place in recent months as the European financial system is under severe test. If it does not hold up, the fallout is likely to be catastrophic.
3. The situation in Asia also needs a careful monitoring as any deterioration in China’s economy is likely to spook global markets and that might well boost demand for safe-haven investments.
Overall, given the falling confidence in the economic outlook and in governments’ ability to get to grips with the situation, there is a high risk of deflation and in such circumstances investors are likely to turn to cash – this is likely to be bullish for the dollar.
“However, because faith in governments has waned with their handling of the crisis, we expect investors will not want to rely solely on paper money and will look to spread their risk by holding gold as well.”
Greater monetarization of Gold is likely to be bullish for prices
As per the India's gold import report, the demand of Gold has reduced from 959 tonne in 2010 to 878 tonne in 2011.
The reduction in demand can been accounted for the following reasons:
1. It was hard to find buyers for gold, as people expected for a correction from its record high.
2. Across world including India, equity markets had lost ground. A bearish tide was rising. In this scenario, investors were required to clear their margin calls and in turn they became the biggest sellers of Gold.
3. Other income sources like real estate market, were also hit by the progressive rise in interest rates by the government. In turn Economy is slowing down.
4. To add to the fire, Indian rupee weakening by around 20% against USD, proved that one of the fastest growing economies had to slow down.
5. One of the current trends that has hit jewellery demand is the increased popularity of investment bars and coins. In Asia, jewellery has always tended to be seen as both an investment as well as an adornment.
“But with prices moving much faster these days and becoming more volatile and negligible making charges with buyback easy, investment bars and coins have provided a more standard product to trade. Due to this we have seen 100% increase in demand for RSBL coins,” Prithviraj Kothari said.
Gold is a good buy for investors at INR 26,000 to INR 26,200 levels whereas Silver at INR 48000 to 48500 levels, Prithviraj Kothari said.
