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Uncertainties adding glitter to gold

Rajiv Bhuva     August 4, 2011
US debt, US rating downgrade, eurozone bailout, gold rally. All of these words have interwoven existence in the investing world. And the overlapping them all is uncertainty. The clouds over the possible US default have been winded aside, thanks to the deal clinched over the last weekend by US to enhance its debt ceilings.

Rajiv Bhuva
Rajiv Bhuva
But the medicine dose is not complete to take anxiety off investors' minds. The outcome is gold trading near an all-time high on speculation that the US Federal Reserve may provide additional stimulus amid signs that the economic recovery is faltering given a meager 1.3 per cent growth reported in its latest quarter. That with headwinds in the Eurozone is spurring demand for investors' wealth protection. And what else can come to rescue except gold.

PERSPECTIVE: Safe-haven status adds glitter to gold

Spot gold price, jumped to a record $1,672.80 an ounce, has rallied 2.2 per cent this week as investors sought 'safe haven' amid concerns that debt problems in the US and Europe will slow growth.

Economy observers are factoring in a 50 per cent chance of another recession in the US on reports of climbing US jobless claims, with the unemployment rate likely to remain above 9 per cent.

Back home, domestic gold price has breached the barrier of Rs 24000 per ten grams and mirroring the international uptrend.

While, internationally, there are signs that the yellow metal may be set to drop owing to influx of speculators who have made the bullion's rally too 'hot'. But global macro economic factors may prolong the price correction for now.

Another economic stimulus in the US will realign investor flows globally and a broad commodity price rally will be its immediate repercussion. That for India, especially the Reserve Bank of India, is a reason to worry when inflation is sticky at 9 per cent.

Until the macro factors move towards stability, uncertainties will keep adding glitter to gold.

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