Gold prices expected to bounce back by March

December 11, 2013 at 08:33

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Gold prices are going to start surging by March next year, All Sindh Saraf and Jewellers Association (ASSJA) President Rasheed Chand said on Tuesday.

Chand said the ongoing downturn in gold prices is a ‘temporary phenomenon’, which will be over before the end of the current fiscal year in June 2014.

“As long as US economic data shows improvement, the probability of sooner-than-later tapering becomes more real, which should keep downward pressure on gold prices,” analysts at Next Capital, a Karachi-based commodities broker, said in a research note.

Theoretically, the price of gold is inversely proportional to the dollar’s worth, which means its value declines if the dollar gains strength.

Gold prices started surging internationally as soon as the US Federal Reserve resorted to quantitative easing in the aftermath of the 2008 global recession. Injecting liquidity into the market by purchasing $85 billion worth of government bonds and financial assets every month has kept interest rates at a low level.

As a consequence of low interest rates in the US economy, investments in gold have soared globally. The price of gold has increased over 60% since 2008 when it stood at $840 an ounce.

The fact that gold prices dropped to a three-year low in June as soon as the US Federal Reserve hinted that quantitative easing could be scaled back as early as September proves that the likelihood of increasing interest rates quickly leads to divestments from the precious metal.

“Gold prices edged higher in range-bound trade on Monday, as traders looked ahead to speeches from a number of Federal Reserve officials later in the day for further indications of the future course of US monetary policy,” said the research note.

However, according to a Wall Street Journal report published on Tuesday, financial powerhouse Goldman Sachs doesn’t expect the US Fed to start raising interest rates until 2016.

Analysts believe this is likely to put an end to the short-term volatility in gold prices.

According to the ASSJA president, gold prices in the country are directly affected by ‘games’ that a certain international lobby plays in order to deceive innocent investors in developing economies like India and Pakistan.

“Although the role of Pakistanis’ diminishing purchasing power cannot be ignored, the fact remains that this international lobby targets gold, currency and stock markets one after another to rip off unsuspecting investors,” Chand added.

However, he said gold prices in Pakistan are expected to undergo a swift increase in the first half of calendar year 2014.