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29 March 2024

Gold@$1,530: Bye, bye bullion, or buy, buy bullion?

Published
By Vicky Kapur

Spot gold plunged further this morning, slipping to $1,529.30 per ounce at 11.20am UAE time (7.30am GMT), with a mixed reaction from experts on its future direction.

While most analysts maintain that the yellow metal will remain volatile in the short term, a section of experts have now started arguing that gold at these prices is an attractive buy, and that an investment in gold today could see handsome returns in the medium term.

“We see further downside in the short term, but remain long-term bulls,” Standard Chartered Bank said in its latest Metals Insight report.

The bank sees the metal losing more of its lustre in the short term, adding to its ongoing battering against the US dollar, but expects $1,520 an ounce to provide the much-needed buying support from emerging markets.

“The market looks set to retrace further in the short term. Support turned resistance is around $1,600 per ounce. Next support should be seen around $1,520-1530/oz,” it noted in its report, adding that while gold futures, down 12 per cent week-on-week, “now look oversold at their lowest level since 2008”, a lackluster Indian demand due to the Asian country’s currency woes may keep the pressure on gold.

Standard Chartered reiterates that it remains bullish on the bullion, but only in the long term, and has even reduced its short term price forecasts for the yellow metal owing to its recent hammering on euro x=zone concerns and weak demand.

“On gold, we remain long-term bulls, but we have lowered our price forecasts to reflect lacklustre demand from Asia and continued selling by investors,” the bank said. Its short term projections for gold price expect the metal to now average $1,600 in the second quarter of 2012.

Short-term prices look set to retrace to $1,520-1,530/oz, but central bank buying and jewellery demand should start to pick up at these lower levels. The next week or so will be important, as FOMC minutes are released on 16 May and the World Gold Council releases its latest demand trends report on 17 May,” the report said.

At the same time, StanChart forecast for gold in Q3 stands at $1,700 an ounce, and $1,750 an ounce in Q4. That would mean that any investor that buys gold at today’s levels (below $1,530/oz) stands to make a neat 12.5 per cent by the end of the year, in about seven months.

Additionally, there are gold bulls that see the metal bouncing back pretty soon. “Like every asset class, gold is in a consolidation phase. Though it’s currently in a bearish phase due to geopolitical uncertainty, it will bounce back shortly. Gold still remains a safe haven and investors should add gold to their portfolio. At least 10-15 per cent of their investments should be in gold,” Lakshmi Iyer, head of products and fixed income at Kotak Mutual Fund, was quoted as saying by the Indian business daily Economic Times.

On the other hand, Marc Faber, better known as Dr Doom for his contrarian views expressed in the popular Gloom, Boom and Doom newsletter, predicted in March that gold could retract to below $1,500/oz. And he said so when gold was trading near $1,700 levels, down from $1,780 levels seen in February.

“All I’m saying is that, in my opinion, the gold price correction is not yet entirely completed. I see significant support around the $1,500/oz level, but it could drop even lower,” Marc Faber, nicknamed Dr Doom for his contrarian views expressed in the popular Gloom, Boom and Doom newsletter, said recently.

“We could have a big correction if global liquidity tightens or they stop printing money, Marc Faber said in March at the Middle East Investment summit in Dubai.

What do you think?