Turn in gold cycle

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SummaryFor gold investors, this year’s Akshay Tritiya may be somewhat cheerful as gold prices have fallen to a year-and-half low of less than R28,000 per 10 gram and the decline is expected to be sharper in the coming months.

With prices sliding globally, investors may like to have a fresh look at gold ETFs, which enjoy many advantages over the metal in physical form

For gold investors, this year’s Akshay Tritiya may be somewhat cheerful as gold prices have fallen to a year-and-half low of less than R28,000 per 10 gram and the decline is expected to be sharper in the coming months. Not just the yellow metal, even silver witnessed a steep fall last week to close at R48,900 per kg.

In the last 10 years, gold has given the best returns among the various asset classes. But, analysts say, the bull run may weaken now as the US economy is recovering and a few central banks may sell their gold reserves. Exchange-traded funds with gold holdings are already seeing outflows. A research note by Goldman Sachs says the fall in prices could end up being faster and larger than the forecast as aggregate speculative net long positions across COMEX futures and gold ETFs remain near record high.

Goldman Sach’s one-year forecast for gold is $1,390 per troy ounce; for six months, it is $1,490 per troy ounce; and in the very near time-frame, for the next three months, it is $1,530 per troy ounce. In the fourth quarter of 2012, the actual price of gold was $1,719 per troy ounce. In the long term — 2017 and beyond — the Goldman Sachs forecast remains at $1,200 per troy ounce. It also says that over that horizon, the US real rates will stabilise and risks to US inflation will be more symmetrical.

The Goldman Sachs report also underlines that the decline in holdings of gold ETFs globally has been significantly faster than expected. “Should the month-long decline in gold ETF holdings extend at its current pace, this would present downside risk to our ETF gold holding path and, in turn, our gold price forecast,” the report underlines.

Indian households have a penchant for gold as the metal has provided the best returns among all financial instruments during a period of high inflation. Apart from high real returns, it is also the most liquid asset. According to the World Gold Council, in the last decade, gold has given a compounded annual return of nearly 20%.

Indians have always preferred the yellow metal as a source of investment and, currently, around 18,000-24,000 tonne of

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