With global market turmoil & weak rupee! Will Gold shine in 2012?
Gold prices may dip in the first few weeks, but the global economic turmoil and a weak rupee are likely to keep these buoyant in market.
By Namrata Dadwal, ET Bureau | Updated:
Gold’s spectacular sprint has been cut short by a speed bump in the past few weeks. From an all-time high of over $1,900 an ounce (Rs35,332 per 10 gm at $1: Rs52.72) in September, the price of the precious metal fell to under $1,590 an ounce (Rs29,520 per 10 gm) in mid-December. The question worrying investors now is whether this obstacle will lead gold prices to trip and fall, or will they touch even higher peaks?
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There is no doubt that 2011 was the golden year; gold prices rose by 32.6%, while the Sensex fell by 25.2% (see graphic). Even silver performed better by delivering 11.4% returns. But will these metals continue to outshine in the new year? Experts are divided about how gold will move in 2012. While some believe that the prices will cross $2,000 an ounce, others argue that these will move in the opposite direction and may drop to as low as $1,450.
Kunal Shah, head, commodity research, Nirmal Bang, is among the latter. “There are two major reasons why gold will lose its sheen. One, the US economic reports have been encouraging in the previous quarter, so the dollar is likely to strengthen. Two, inflation is expected to moderate. I see gold trading at $1,300-1,400 an ounce in the coming year. Any major rally from here will be a good opportunity to book profits.”
The global economic turmoil may be a stimulant as well as a dampener for gold prices. While the metal is seen as a hedge against inflation, in the current scenario, there is fear that deflation may be more likely. In fact, despite the recent warning by rating agency Fitch that it may downgrade France and six other Eurozone countries, gold prices remained lacklustre.
The opposing school of thought believes that as the factors that pushed gold prices this year-Eurozone debt crisis, negative real interest rates, inflation and debasement of fiat currencies-will continue to have a strong impact in 2012, the prices will move even higher.
Major international banks have predicted that gold prices will rise by 13-28% (above $1,595 an ounce), which means that they will range from $1,810-2,050 an ounce. According to Goldman Sachs, central banks may buy 400-600 tonnes of gold in 2012, which could push up the price of gold.
Other analysts are also bullish on gold. Says Renisha Chainani, manager, commodities research, with Edelweiss Comtrade: “There is more than a 50% chance that gold prices will touch the $2,000 mark in the second half of 2012. However, it will not be a one-way rally and volatility may be high, so the price could range from $1,500-2,000 next year.” She advises investors to allocate no more than 10% of their portfolio to gold.
Though prices may fluctuate in the international market, the variance in India may be low because of depressed demand between 16 December and 14 January. The demand will pick up when the wedding season starts and gold is bought irrespective of the price. Another reason is that though prices may decline globally, the weakening rupee will keep them high in India. Says Thomas J Muthoot, MD, Muthoot Finance: “The global gold prices have slid almost 7% in the past month, but the falling rupee has contained the fall to 2.5% in India.”
Major international banks have predicted that gold prices will rise by 13-28% (above $1,595 an ounce), which means that they will range from $1,810-2,050 an ounce. According to Goldman Sachs, central banks may buy 400-600 tonnes of gold in 2012, which could push up the price of gold.
Other analysts are also bullish on gold. Says Renisha Chainani, manager, commodities research, with Edelweiss Comtrade: “There is more than a 50% chance that gold prices will touch the $2,000 mark in the second half of 2012. However, it will not be a one-way rally and volatility may be high, so the price could range from $1,500-2,000 next year.” She advises investors to allocate no more than 10% of their portfolio to gold.
Though prices may fluctuate in the international market, the variance in India may be low because of depressed demand between 16 December and 14 January. The demand will pick up when the wedding season starts and gold is bought irrespective of the price. Another reason is that though prices may decline globally, the weakening rupee will keep them high in India. Says Thomas J Muthoot, MD, Muthoot Finance: “The global gold prices have slid almost 7% in the past month, but the falling rupee has contained the fall to 2.5% in India.”
The coming year may see the sheen of precious metals wane a little, but they will continue to give good returns. However, retail investors should stay away from the volatile silver. A dip in the prices of gold, on the other hand, could be a good buying opportunity. Says Muthoot: “The price of gold may come down a bit in the next few weeks to $1,450 an ounce, but is likely to go up to $1,800 by March 2012.”
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