Safe-haven status adds glitter to gold
Rajiv Bhuva July 15, 2011Safe haven means 'a protected body of water or the well deck of an amphibious ship used by small craft operating offshore for refuge from storms or heavy seas.' By definition, the term holds relevance for sea farers. But investors are more prone to use this term, more so when the investment climate gets challenging.
The safe haven of the season is gold. For the quarter ended June 2011, gold prices have continued their upward journey, having risen 4.5 per cent over the previous quarter and 11 per cent from the start of the year. The sustained price rally has found support from investors on the back of geopolitical unrest in the Middle-East and sovereign concerns in the Euro zone.
And while that would have been enough on its own, the US dollar has caught weakness on the back of rating agency Moody's threat to downgrade the United States' credit rating if the government misses debt payments. Chairman of the US Federal Reserve Ben Bernanke in his Semiannual Monetary Policy Report to the US Congress reiterated: "The Committee expects that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period."
These indications also keep longer term inflation expectations well in place.
"The supply demand dynamics along with macroeconomic factors are likely to keep the gold investment demand on a growth trajectory in coming quarters," says Deepa Shakdwipee, Research Analyst at Aditya Birla Money, in a report on gold released on July 14.
In India, gold demand has been robust. The country accounts for nearly 35 per cent of global gold demand. The domestic price mirrors the global trend and reached above the psychological resistance level of Rs 23,000 per 10 grams on July 14. The next high level could be Rs 23,148, according to Basant Vaid, Senior Research Analyst at Mumbai-based Bonanza Portfolio Limited.
"We have witnessed gold price correcting sharply after breaching its all time highs," said Vaid, who warns that prices are technically vulnerable for a sharp downside. "Although fundamental factors are extremely bullish at the moment investors should remain cautious and keep a watchful eye on a possible technical correction," he added.
But as long as inflation, especially from food and fuel prices, continues to be a real concern for the global investor, gold will continue to catch their attention as a safe haven for preserving their wealth.