By Saghir Aslam
(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live with dignity and fulfill their moral obligations towards charitable activities)
Gold recovered the $1,300 a troy ounce level as investors digested last week’s dovish signals from the US Federal Reserves.
But it failed to rally further as it met with continued liquidation of exchange traded funds. The yellow metal rose above the technical resistance level of $1,300 on comments the previous week by Fed chairman that tapering of quantitative easing would not begin without firm signs of economic improvement.
Physical demand provided some support but many investors remained wary of pushing the gold price higher and the precious metal was also trading higher, up 3 percent on the week.
Analysts said the yellow metal was also held back by continuing liquidations of ETFs.
“Aside from the modest inflow of half a ton, the first daily inflow since mid-June, holdings have continued to trickle lower “,
Chinese demand for gold jewelry and coins remained firm, providing underlying support. Data from China this week pointed to record volumes of gold and silver jewelry sales in the first half of the year.
Meanwhile, the World Gold Council, the lobby group for the gold industry, said China was expected to become the leading buyer of gold this year, ahead of India for the first time. China is expected to purchase 950 to 1,000 tones while India is expected to buy 850 tones.
Gold’s sharp fall last year continued to claim victims, with Goldcorp, the biggest gold miner, this week announcing a $2bn write-down on its Mexican projects. Global gold mining sector write-downs could exceed $20bn over the current reporting period, according to analysts, and several companies, including Barrick Gold, have warned investors to expect multibillion dollar impairments.
A report from Goldman Sachs failed to provide much comfort for miners hoping for a rebound in the gold price.
The Wall Street bank said it expected the precious metal to remain range bound, trading at about $1,300 a troy ounce. For some time Goldman maintained its average price forecast at $1,413 a troy ounce and said prices would continue to fall, declining to $1,050 by the year-end 2014.
An improving US economy and “a less accommodative monetary policy stance” would push gold lower, it said.
Haven asset isn’t gold, it’s green
Gold bugs are exulted. When the Federal Reserve chairman said, that the US central bank might start winding down its bond-buying program latter this year, the yellow metal went into a tailspin. It has perked up again, hitting a one-month high.
But hang on a minute. Isn’t gold supposed to be a hedge? It goes up, or at least holds firm, when everything else takes a tumble? Its recent price action suggests it’s just a speculative commodity like any other. Just like the S&P 500 index, which has hit new all-time highs.
You could argue that gold’s finest hour will come only when there’s a real crisis. When fairytale monetary policy ends, it will unleash a firestorm of inflation that shakes the world’s monetary system to its core. That will be the time to own gold – and everyone will want it.
Maybe. But in the meantime, the haven asset par excellence seems to be the very antithesis of gold. It’s the paper money standing on a stack of debt and myriad unfunded spending pledges, the one backed by a central bank whose balance sheet has ballooned since the financial crisis began. It’s the dollar. (Continued next week)
(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)