In nations such as India gold has a mythological, historical, economic and cultural significance when it comes to its hoarding and storing. The commodity has given an average of 20% return in last one decade and sustained demand, central bank buying, bullish price action, continuous positive returns have all attracted investors towards gold.
Investors invested in gold have received positive annual return of 12% in 2012 as imports climbed (though the import duty was a dampener), consumption surged and Indian Rupee depreciated against Dollar. [The benefit of decline in USD price of gold recently was neutralized by a rapidly weakening rupee which pushed domestic prices towards record highs and compressed physical demand.]
But 2012 has ended on a tame note for the yellow metal; so bullish investors seem to be nursing a new-found caution when it comes to the commodity especially as they enter the new year. And market indicators suggest that a short-term pullback is on its way for gold.
For gold there’s potential for price climbs under just about every fiscal-cliff scenario.
The U.S. fiscal cliff issue has short-term impact on commodities and its negative implications would be bearish for the USD and as a result, gold would outperform as both a currency and a safe haven.
In case of minor rate hikes in taxes by US govt, it can affect market sentiments for short term with sell off in metals and bullish moves in gold.
It has to be noted that there was a 30% gold price rise witnessed last year as US encountered a mini fiscal cliff and a slew of debt ceiling debates. And we should see that again in the fiscal cliff deal path in 2013.
Outlook for 2013
Everyone seemed to be a gold bull earlier this year in 2012, but the year has ended on a relatively tame note in the month of December. The outlook for gold in 2013 looks optimistic going by further messing up of economic issues in the U.S. and Europe.
Looking ahead, the U.S. Federal Reserve’s plan to continue with printing of money, fiscal-cliff negotiations, and the new stimulus plans by the Bank of Japan (BOJ) should all prove to be highly bullish for gold.
Important technical levels
Major support level for spot gold is expected at $1500 an ounce and an upside potential is likely to be seen initially towards $1800 and above that at $2000 in coming years.
Gold prices in India are likely to remain volatile depending on Indian Rupee movements against dollar.
India’s economic woes and raising of the import duty as well as currency printing drive should be watched out for.
In domestic markets, gold is likely to get traded between Rs 30000 -32000 in short-term. Long term target seems to be near Rs 34500 for December 2013.