On Thursday, European Central Bank President Mario Draghi commented that the economic growth outlook for the euro zone is facing downside risks due to the debt crisis. Upside risks regarding inflation made things bullish for the gold rate today and for the rest of the next week or so.
Some experts say that Mr. Draghi has concerns regarding eurozone stagflation. Traders, hedge funds, and speculators took this and the possibility that additional U.S. quantitative easing will not come as signs to sell their positions and put their money in the U.S. dollar and treasuries. In the recent past, the golden metal has fallen with riskier assets during the initial phases of a selloff and at intermediate highs in the stock market. More recently, the metal has declined less than commodity and equity markets, recovered more quickly, and risen following a short correction and consolidation.
The selloff has been sharp but the more recent pattern is expected to continue. With many investors selling bullion, a bottom may have been hit. Though western market and China gold demand have declined, market fundamentals are unchanged, which should support prices. Some analysts expect demand to increase in upcoming months due to debt crises in Spain, Italy, and possibly the U.S., UK, and Japan. They recommend that investors take a buy and hold approach, accumulating more metal on the price declines.
Well-known investor Jim Rogers is following this advice, stating that he will purchase more golden metal while prices are weak. The Rogers Holding chairman said he is still bullish on gold for the long-term. From a short-term perspective, he is not as optimistic, which led him to comment that when the price declines further, as he expects it will, he will purchase more of the metal. So far, many of his predications have been accurate, including the 1999 bull market for gold, a worldwide commodities rally, and financial market developments during recent years.
Mr. Rogers recently stated that he would buy at $1,600 per ounce and further increase his holdings when the price drops to $1,500 per ounce. He said that the price will climb much higher in the next ten years but did not elaborate. In November 2011, he said the price would “easily” increase to $2,000 per ounce and would reach $2,400 per ounce during its bull run, “which has years to run.”
The yearly gain for the golden metal is currently 3.4 percent. On Thursday, the Federal Reserve indicated that much-expected monetary stimulus might not become reality. The price of gold dropped by two percent following the Federal Reserve news. The dollar rose by up to 0.6 percent against a six-currency basket, causing a decline in demand for precious metals as alternative investments.
Remember, this is what we’ve been talking about — at some point in the next 12-24 months, there’s a good chance the Fed will move from easy money to higher interest rates — which means gold will get kicked in the teeth. That’ll be good for those of us looking for more opportunities to buy gold for the long haul.
Many are taking advantage of falling prices, with the former Deputy Finance Minister of Russia planning to create the country’s first ETF backed by physical gold. According to RBC Daily, Andrei Vavilov plans to make bullion deposits in London or Zurich banks and trade their derivatives. The ETF would be traded on the Moscow Micex-RTS exchange and the Irish stock exchange.
Vietnam recently approved a monopoly on production and trade of bullion, effective May 25. A statement on the Vietnamese government website announced that Prime Minister Nguyen Tan Dung gave the regulation his approval. Only domestic businesses will be permitted to create and sell jewelry. During the next six to 12 months, these establishments must re-register with the Vietnamese central bank.
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