No boom, only doom awaits gold!

By Geena Paul
MUMBAI (Commodity Online): A few months ago I had written about the gold's love for tragedies. Gold always thrived on disasters like recession and rising inflation rates. So when the world is looking rosy and there are no immediate financial dangers lurking in the backyard of countries, what will the much-sought-after yellow metal do?

If you want to know this, just have a look at the movements of gold prices in the recent past when World Bank and International Monetary Fund predicted that the global economy is back on track and countries like India and China are set to make better than expected growth rates.

What more, even the US is on way to recovery. Same is the case with European nations. So, everything is hanky-dory - EXCEPT FOR GOLD.

The yellow metal can't stand anything good. Because, uncertainty is gold's biggest bet. It always rides the recession wave and making use of the confusion in the global economy during the past two years gold soared to levels beyond $1,200 per ounce. Yes, gold boom forecasters will always say the metal is set to cross $1,300 per ounce soon and even the prices may cross $1500 per ounce within a year. However, when reports came in that the global economy is on strong footing now, most of these soothsayers for gold have vanished from the news reports.

Now, you can just see a few hardcore gold backers saying that the gold prices are in a lull and will stage and solid comeback with the prices going beyond $1,200 per ounce.

Considering the global scenario now, this is highly unlikely. Even though certain analysts love to believe that gold will soar with the coming festival season in India and China, that may be a limited one. Because, people in India and China, two major buyers of the metal, are staying away from buying the metal now as the prices are very high even now for them.

Then the other section of gold consumers - investors - also don't see much scope in buying the metal as there are many other options for them now like equity market, which is looking good in several nations now following a surge in economies. Again, metals like platinum and palladium, which have industrial use also, seem to be more lucrative for many investors now. Commodity investors have also realized that even commodities like garlic can beat gold in terms of profit (garlic and turmeric prices rose around 300% in the recent past).

So, smart investors are now dumping the 'risky' gold, which has shown a steady decline in the recent months. To add to gold's woes, UK bank Standard Chartered Plc this week lowered its 2011 gold forecast to $1,100 from $1,300 an ounce.

The bank has pointed out that a dollar rebound, lack of investment interest and weak central bank buying have damaged the prospects of gold. The US dollar remained a powerful influence on gold prices, and a resurgent dollar combined with high volatility would pressure gold prices, said the bank.

Gold often moves in opposite direction to the dollar, as the metal is used as a hedge against paper currency depreciation.

Not ready to accept the writing in the wall, some analysts are now trumpeting that investing in high-end jewellery, such as pieces made from gold, is a good option for consumers.

But, a recent report aid that consumers in India are shying away from gold jewellery because of the high prices. And, in China demand for gold has gone up but more and more people are now lured by platinum.

Considering these factors, it is not boom but doom is awaiting gold in the coming months. And, the yellow metals prices are set to come down further in markets like India as the jewellery demand takes a beating, the rates are set to fall. To add to that even as the demand falls, several gold miners across the globe had ramped up their production during the past couple of years anticipating a new surge in gold prices. This will result in more and more gold coming into the market.

Another factor which will rein in gold prices is that central banks across the globe are not very keen now to buy gold. After India's Reserve Bank made a 200 tonne purchase in November last, no other major banks have come forward to buy gold in a big way.

This disinterest by central banks is a clear and solid indication that gold prices are set to move down not up.