Gold is headed for its first annual decline since 2000 as investors sold the metal and loaded up on equities and other assets to take advantage of cheap money made available by central banks to stimulate economic growth.
The yellow metal, the safe haven asset bought in times of trouble and high inflation, has dropped 26 per cent so far this year and is headed for the biggest yearly drop since 1981. Bullion traders are waiting to see if the US Federal Reserve reduces the monthly $85 billion in bond purchases when it meets this week amid signs of improvement of key economic indicators.
“Basically it’s all about if the US Federal is going to announce tapering,” said Nour Eldeen Al Hammoury, a market strategist at ADS Securities, an Abu Dhabi-based securities brokerage.
“It would be negative if they taper because inflation is still not a risk. A trigger for higher gold prices is a delay or if the Fed doesn’t give a precise time frame for tapering.”
Declines in bullion prices have not been bad for everyone because demand for physical gold is still healthy. In Asian and Middle Eastern emerging markets such India and Egypt that have volatile currencies, individuals have increased gold purchases to preserve the value of their wealth.
“Demand for physical gold is strong and people buy when prices are cheap,” said Tarek El Mdaka, the managing director at Dubai-based Kaloti Jewellery Group, a trading house building the world’s largest gold refinery.
“Since the Arab Spring, gold demand has increased in countries facing political instability and currency devaluation like in Egypt. As a hedge against inflation it is more liquid than real estate.”
The turbulence in gold prices this year may have a silver lining. Technical analysts who look at chart pattern trends and ignore fundamental ones such as economic indicators to predict future behaviour of securities have noticed that recent sell-offs in the metal have not been as severe as ones earlier in the year, and that this may indicate a reversal of fortunes in the works.
“Gold prices have been volatile, and sentiment is bearish, with prices dropping from $1,440 to $1,200 levels since the beginning of September,” said Aksel Kibar, the chief technical strategist at Invest AD, an Abu Dhabi-based asset manager.
“However, the selling pressure has diminished compared to previous sell offs – this sell off is not as aggressive. We are likely to see a rebound and we can expect gold to move up towards $1,360.”
mkassem@thenational.ae
