Gold facing resistance at higher levels

Jasdev Singh the legendary hindi radio commentator for hockey was aptly referred as the `voice of Indian Hockey’. Now, hockey is a fast paced game and he had an inimitable delivery style that vividly described the game and conveyed the fast pace of the game with his voice. In their heyday, the Indian forwards constantly were on the attack on the rival goal.

His voice would rise in a crescendo as the forwards reached the opposition `D’ and poised for a goal. And invariably when they missed or fluffed their chances he would end it with one word lekin that conveyed the culmination of an attack with another missed chance as well as the disappointment to the many listeners.

That one word lekin said it all. Not quite unlike the Indian hockey forwards gold too has had many lekin moments ever since it scaled $1,566 per ounce a few weeks ago. In the last couple of weeks alone, gold tried to break free only to be repulsed by the adverse factors that have kept gold on a leash.

It was repulsed from around $1,533 per ounce and then again from $1,527 and again from $1,517 per ounce in the last two weeks alone. Scarily for the gold buffs, each rebuff saw the gold price go under the 1,500 per ounce mark repeatedly.

So much so, that the gold price dipped to $1,473.45 per ounce on 1st of October (London pm fixed). During that day, the gold price may have slipped much lower that in turn brought the fear that gold was fast falling into a bearish phase.

But, the quick turnaround from nearly 2% fall in the price and the fact that the gold sprice ended above the $1,500 per ounce level in New York on Friday (October 4) brought much succour to gold buffs. Their belief that gold was still in a bullish phase received a much needed boost.

Gold faltered repeatedly in the last couple of weeks as the very factors that aided the yellow metal in its bull run appear to have lost its fizz. Geopolitical tensions in various regions seem to have dissipated almost overnight.

The flash point in the Gulf between Iran and Saudi Arabia seems to have been doused at the moment, the US-Iran war mongering and the US-Taliban standoff too has failed to explode and on the contrary things appear to be cool right now.

The markets also appear to have discounted the threat of an N-war the two South-east Asian neighbours as only hot air. Probably, the United Nations General Assembly deliberations saw most adversaries adopting a conciliatory approach barring an exception or two.

On the economic front, the US-China trade war appears to have again reached a negotiation stage with China’s top trade negotiator heading for the US.

However, in the second half of the week gold bounced back as it looked at statements from the US president that any trade pact with China would be possible only after his re-election.

The prospects of weak US data and the likelihood of another Fed rate cut boosted sentiment for gold. The increase in violence at Hong Kong is another factor that aids gold. Saudi unease over Iran, Brexit and the real prospects of Trump’s impeachment proceedings all added to anxiety in the markets.

The news that if the incumbent US president was not elected again gold would be aided by tailwinds energised the bullion markets. Overall, gold looks at the next week in a bullish frame of mind.

Meanwhile, a recent WGC (World Gold Council) release on its website mentioned about the advantages of investing in gold. The report in a nutshell: Investors have always invested in commodities to improve risk-adjusted returns, inflation protection, diversification and an element of smoothness across business cycles.

Gold invariably finds a place among other broad-based commodities. However, it is often given low weight age and its importance is undervalued. Gold is a multi-faceted asset that enjoys a diverse supply-demand dynamics that play an important role in gold’s performance.

It has six main characteristics; (a) It has delivered better in the longer term, risk adjusted returns than any other commodity. (b) It is also a more effective diversifier than other commodities. (c) It outperforms other commodities in low inflation period. (d) It has low volatility. (e) It is a proven store of value. (f) Highly liquid. Moreover, strategic gold allocation can supplement or replace broad based investment in commodities as well; it may even offer more widespread benefits.

Finally, there is a crying need for India to come out with its comprehensive Gold Policy soon. Otherwise, its neighbours and Gulf partners will continue to flourish due to its regressive tariff structure.

The author is an independent analyst of precious metals and diamonds, who has worked with GFMS and WGC.

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