Gold prices peak – Retail consumers left high & dry!

Three prime determinants for the fluctuation in the prices of the glittering Gold are exchange rate dynamics, the inflationary impact and lastly the nature of crisis situation prevailing across the globe.

The price of gold in the international market has surged to $1240 an ounce – Rs.18250 per 10 gm – touching the highs of Rs.18300 recorded in first week of December 2009. The prices of the yellow metal has surged around $130 in about just a month on account of European crisis.

Gold Surge on European Crisis

The huge surge in the Gold prices is an indicator in itself about how much the global investors are risk averse following the recent instance of Greek crisis and its contagion impact spreading across Southern Europe, reminding them about pain of the Great Recession just passed by.

Traditionally, Gold is known for its unique property of acting as a ‘safe haven’, in times of panic and drama across the global economy. Market participants tend to cling to the Gold when there is increasing uncertainty and risk associated with the financial and economic well-being of the global health.

After witnessing a prolonged sharp recovery from the recent recession, some analysts have started betting on the prospects of the double dip recession on account of acute problems within them members of the European Union.

If, indeed, the world settles for a double-dip recession, it could be ultra-positive in terms of prospects for the prices of Gold even from here, as the risk-aversion among the investors is likely to regain its clout across the globe.

Gold has witnessed a sudden surge in demand post-Greek crisis and expectations among analysts that the $1 trillion bail-out package may, finally, fall short of bridging the funding requirements of the weaker sections of the European Union under severe debt straps

Gold Surge on Inflationary Concerns

Gold is said to be a hedge against rising inflation and that it provides risk-adjusted returns that just manage to cover inflationary costs. Gold prices continued to set fresh highs on fears about rising inflation that ensured enhanced glitter for the yellow metal.

What is stretching the gold prices higher is that in spite of the European debt crisis, the speculative demand for the commodities building higher inflationary pressures still not subsiding.

Analysts are also getting concerned about the money being printed to bridge the deficit hole of the debt-laden European nations. The impact of the ECB’s decision to buy junk bonds of euro zone government bonds may also stoke the inflation across the globe.

The inflation around the globe, especially food inflation, is thriving at record highs on the back of expectations of renewed demand from emerging economies of the world.

India’s annual food inflation still lingers around the highs of 16.44% as on week ended May 1, though down from 19% in December 2009. The overall WPI inflation is inching closer to the double digit mark.

Inflation is also picking up in China. China’s National Bureau of Statistics reported that the consumer price index for April touched 2.8% from a year ago, while food prices surged 5.9%. Whereas, the producer price index has also increased to 6.8%.

The People’s Bank of China has already taken a number of steps, including raising bank reserve limits, to curb effects of higher inflationary impact.

With the auspicious occasion of Akshaya Tritiya fast approaching, will the rocketing gold prices give respite to the retail consumers?