March 22: For investors in gold, who have lost heavily during the previous two years when prices dipped to an 18-year low of $277 per ounce, 1998 may not be so bad. The worst seems to be over as there is little down-slide risk now. The gold price seems to have overcome a gruelling period which began since mid-1996 when the Belgian central bank announced a massive sale of gold. The end of 1996 saw Dutch stepping in to sell further gold with more states following in.In mid-1997 , it was the turn of Australian central bank's turn with a 160-tonne sale (around 5 per cent of world annual supply). And the final jolt, which saw gold prices crashing to an 18-year low, was the Swiss Bank's proposal to support its currency through a 1600-tonne gold sale by 1999.
Truly, all these negative news have been reflected in the current gold prices. What is required now is some positive news. Fortunately, the Australian treasurer Peter Castello said last week that the central bank of Australia was not considering furthersales or purchases of gold.Positively, this news can provide some relief and gold prices can rise in the interim.
The technical position too support the theory of short-term rally. Although the long term averages are in negative phase, the technical indicators suggest that price may rally to $320 per tonne in coming months. As far as the domestic market is concerned, any decline in rupee value would further strengthen the gold prices. But this does not mean that long-term scenario for gold will change dramatically. The reason is not far to seek. The general perception among the investors that gold is best hedge against inflation, especially in India (consuming around 22 per cent of world supply) no longer holds good. The price of gold (in real term), has declined sharply in the last couple of years. From an average price of $1,169 per ounce in 1980 to last years average price of $387 per ounce. The recent fall has even brought the traditionalists to come to terms with the real world. To regain its oldglory, gold market needs to wait for much longer period.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
