Gold bounces right back; sheen unlikely to go away

In early November, gold prices hit a two-month low weighed down by the US jobs data. This week it gained 3.5 per cent hitting a two-month high in the process.

Somehow, gold fails to lose shine, as there is plenty of buying support at lower levels, that props-up the metal once again.

Going into the next few weeks of 2012, the gold lustre is unlikely to fade away anytime soon, given that demand remains robust and globally the risks are just too many.

Gold is known to be a safe haven investment in times of chaos. Given that we certainly have chaos in Europe with Greece and Spanish economic worries and in the US through the US Fiscal cliff, gold demand is unlikely to wane.

In India the festive season will ensure that demand remains robust, though one must admit that taxes and levies announced in the Union Budget 2012-13 has ensured that imports have dropped.

However, in India domestic prices are determined largely by international prices and the movement of the rupee. International prices have already hit a two-week high.

The rupee meanwhile fell for a second straight week, marking its fourth week of decline in five, making gold more expensive.

The rupee is likely to remain under pressure, exposing it to global vulnerability, ensuring that gold prices remain at elevated levels.

Clearly, the sheen of gold is unlikely to wither away, so buy gold on dips should remain the right strategy.

GoodReturns.in