Gold: Where is it headed? How will it perform?

Gold prices are ruling above $1000 per ounce and there is no bull stops for the yellow metal even after Diwali in India.

Market analysts are still clueless about the future of the metal as a prediction of gold’s future course is almost impossible at present.

Still most of the analysts favour one thing that the metal will continue its bull run for some more time.

Some analysts said the Asian Financial Crisis in 1997-98 resulted in an accumulation of forex reserves over the last decade. After amassing forex reserves in US treasuries, many Asian economies and export-oriented countries have exhausted their appetite for US debt.

The slow divestment from US treasuries to gold and other precious metals will impact the price of gold. An increasing proportion of forex reserves is being held in gold as countries realise that this could also be a sensible hedge against a slumping US dollar.

Certain other sections of the market said gold, like most other commodities, is a dollar-denominated asset. Any significant movement in the US dollar directly impacts the price of gold.

The commodity bull market cycle will considerably impact the long-term price of gold. Commodity cycles usually last 15-20 years and this one, which started in early 2000s, will peak between 2017 and 2020. Prices of steel, copper, sugar and oil have risen significantly from the early 2000 and will continue to do so steadily for another decade or so.

The supply-demand equation of an asset is what determines its price in the marketplace. Like many other commodities, the supply of gold will always be constant and increase slowly as mines become operational and new technologies to unearth gold are invented.

But the demand for gold can surge if there is a sudden perception of weakness in a currency, the economy or the stock market. New highs in gold prices clearly reflect that demand for gold is rising and will continue to.

The Indian festival season could give a temporary impetus to gold prices and help sustain the bullish run. Although not a driving factor in the long-term price of gold, the appetite of the common man for gold in countries such as India and China does impact the price.