Gold prices may plunge to five-year low

June, 13, 2014

Gold prices are expected to plunge to five-year low this year with the US asset purchase programme ending by December 2014, said experts on Thursday.

Gold price slightly moved up in domestic and international markets in the last 24 hours.

“Gold - which maintained at one year low of Rs47,600 per tola (11.66 grams) for three days till Wednesday – improved by Rs200 per tola to Rs47,800 per tola on Thursday,” Haroon Rasheed Chand, president of All Sindh Saraf and Jewellers Association, said. “The upward revision in bullion’s price was made after local markets witnessed a little renewed buying,” he said.

Chand said that the slight increase (of $2 per ounce) in gold price in international markets in the last 24-hour and parity between rupee-dollar also convinced the association to have revised up the bullion price.

He, however, believed that local markets would soon reset to downward trend. “The markets may see some buying at the end of Ramazan (likely to start from June 29-30),” he said.

Muhammad Irfan at Pakistan Mercantile Exchange (PMEX) said that gold was bouncing back at the world markets this week on renewed ‘physical buying’ – especially in India and China. The buying was initiated after it had fallen to one year low last week. However, majority of the leading bullion analysts at world across foresaw the yellow metal falling to five-year low of about $1,000-1,050 an ounce by December 2014 from today’s $1,266 per ounce, he said.

At the end of 2009, gold was standing below $1,000 an ounce at world markets, he recalled.

“The gradual winding up of Fed [US] program of purchasing assets would cause the gold to plunge to five-year low by December 2014,” he said.

Irfan said that the 2008’s world recession had convinced Fed to have initiated an asset purchase programme. Under the programme, Fed was injecting $85 billion into its crumbling economy every month through buying bonds and treasury.

However, a sharp recovery in its economy seen in the last two years convinced Fed to wind up the programme this year. It has declined its monthly injection by $40 billion in the last six months to $45 billion. It is expected that Fed will slash the monthly injection to zero dollars by October-November 2014, depending upon positive/negative changes in its economy, he said.

Adnan Younus Agar, head of trading desk at Arif Habib Commodities, said that Fed was tapering off its asset purchasing program due to significant decline of two percent in US unemployment rate to 6.3 percent in recent months, considerable increase in purchasing power of its citizens and increase in productions amid growth in its gross domestic product rate.

The improvement in US economy was also helping other world economies to bounce back, including European Union and China. “The improvement in US economy helps its trading partners (especially EU and China) to increase their exports to US and strengthen their economies as well,” he said.

“Growth in world economies and ending of the Fed’s programme are expected to push gold to hit new low of $1,080 per ounce this year,” he said.

The bullion has decreased by $656 an ounce, or 34 percent, to date ($1,266 an ounce) from all time high of $1,922 an ounce recorded in 2011, he said.

Agar said that stock markets boom world over were suggesting that investors were relocating their investment from gold to stocks and currency markets.

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