Glittering Gold!!!

Cherishing time for Indian women (including me) – After all, festivities have begun and adding icing to the cake is the recent fall in gold prices. Naturally, I am going to do some gold shopping even though I expect a huge rush in jewellery stores.

Gold prices in India have fallen to an eight-month low (on 11-Sep-2008) – gold prices in Mumbai stood at Rs 11,190 per gram (similar levels were last seen in January 2008).

Why have Gold prices fallen?
There are two main reasons:
a) Easing crude oil prices – gold and crude prices go hand in hand…rise in oil prices fuels inflation while gold serves as a hedging instrument for inflation. Off-late crude oil prices have fallen (and are expected to remain around $100 per barrel), thus easing global inflation worries. This in turn has lowered demand for gold and thus led to fall in gold prices.

b) Strengthened dollar – Gold prices are generally inversely related to US dollar movements as investors prefer to buy gold as an alternative asset (to hedge inflation) when the dollar falls and reverse the scenario when dollar picks up. As US dollar has strengthened considerably, gold prices have eased.

What about future movement?
EIA (Energy Information Administration) of US Department of Energy expects a slowdown in world petroleum demand growth. WTI crude prices are projected to average $116 per barrel in 2008. But demand is projected to improve in 2009, thereby increasing the crude price projections to $126 per barrel in 2009.

In light of the current scenario, experts believe that gold would trade at lower prices for some time and have thus lowered their earlier forecasts for gold prices (Standard Chartered’s Metal Analyst has revised down his gold forecast from $925/oz in the fourth quarter to $850/oz, and reduced his 2009 forecast from $944/oz to $875/oz).

With lower price forecasts in the short term, the yellow metal is definitely going to see high purchases in the Indian markets.

So, should I wait for few more weeks for prices to fall further? - Not this time – Better make hay while the Sun shines…..