Gold loses sheen for 3rd year; investors eye other asset classes

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Published: December 25, 2015 4:00:05 PM

Extreme volatile in the rupee value and the uncertainty around the long-pending rate hike in the US added to the roller-coaster ride for gold throughout 2015, while the headwinds from a slowdown in China added to the worries.

goldMeasures to curb gold imports for most part of the year and the government’s ambitious gold monetisation scheme to encourage households and institutions including temples also had their own impacts. (Reuters photo)

Set for the third straight year of downtrend, gold has lost further sheen in 2015 with a fall of over Rs 1,000 per ten grams in its prices as investors looked for other asset classes and the government sought to monetise the holdings lying idle with the households and institutions.

The silver has been no better with a dip of about 8 per cent in its prices. The gold prices have dipped by about 5 per cent this year.

Extreme volatile in the rupee value and the uncertainty around the long-pending rate hike in the US added to the roller-coaster ride for gold throughout 2015, while the headwinds from a slowdown in China added to the worries.

Subdued domestic demand along with fears over slowdown in global consumption further dampened the sentiments, while improving outlook for equity markets led to the investors looking for asset classes with better return prospects.

Measures to curb gold imports for most part of the year and the government’s ambitious gold monetisation scheme to encourage households and institutions including temples also had their own impacts.

After beginning the year at around Rs 26,700 per ten gram, the gold prices have fallen to Rs 25,500-level so far in 2015 with just four more days of trading to go.

The silver prices have also fallen from about Rs 37,200 per kg to close to Rs 34,300 level this year.

The tumultuous rise and fall of the yellow metal’s price badly affected investment demand, while a weak monsoon appears to have hit the rural income levels.

Heavy outflows from the gold exchange-traded funds (ETFs) too played a role in driving down both the prices and the investors’ expectations.

The relaxations in stringent gold import norms by both the government and RBI towards the end of the year have failed to support the prices so far.

India’s gold demand, which normally see its strongest spike in the fourth quarter due to the busy wedding and festival season, could not see much revival on higher domestic inventories.

The country’s gold import tumbled by 36.48 per cent to USD 3.53 billion in November this year, while silver took a big slump, dropping by whopping 55 per cent to USD 285.01 million in the same period, according to the Commerce Ministry data.

In the very beginning of the year, gold had managed to reclaim the psychologically significant Rs 28,000 milestone and hit a yearly high of Rs 28,215 in mid-January amid stock market turmoil triggered by the Greece political fiasco. However, the rally seemed to be too short-lived and the silver prices also got hit by the spillover effect.

A collapse in global commodity markets, coupled with a slowdown in the worldwide consumption, added to the worries as the year progressed.

By July, the gold prices crashed below the Rs 25,000- barrier to hit a low of Rs 24,590 – its lowest level since 2011 — amid a global commodity market meltdown.

Continuing on its roller-coaster ride, the gold prices returned to a high of Rs 27,250 in August after breaking its seven-week uninterrupted descending trend – the longest retreat since 1999. However, this short rally appeared to be driven by largely speculators and any further jump remained elusive even during festivities and weddings.

The gold prices are now more than 25 per cent away from the lifetime high of Rs 33,790 conquered in August 28, 2013.

This is the third straight year of downward path for gold, which remained the most the favoured asset class for more than a decade by outperforming all other investment instruments in India between 2003 and 2012.

In global markets also, gold witnessed a turbulent ride and remained overshadowed by the US dollar strength.

It peaked above the USD 1,300-mark an ounce at the beginning of the year, but witnessed a catastrophic sell-off soon after and crashed below the crucial USD 1,100 level to hit a five-year low of USD 1,046 toward the year-end after Federal Reserve’s historic monetary tightening.

Industrial metal silver also crumbled to hit a low of USD 13.884 an ounce mark after the China’s commodity driven growth took a big reversal. It had climbed a high of USD 18.36 in early January.

The Presidential election in the US and the Europe referendum in the UK in 2016, China’s continuing economic wobbles and the big cyclical downturn in commodities may pose a fresh set of challenges for the yellow metal next year.

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