Investors and organizations, directly dealing and possessing physical gold, have declined their gold reserves or holdings internationally citing that the prices of gold are unlikely to rebound until the major economies faces crisis or the dollar index sharply plunges or the inflation picks up in the core global economies, especially the US. The market believes that the yellow metal, for now, is unlikely to touch the $1,600 mark unless any significant economic stances occur in the major global economies.

For instance, private banking division of Royal Bank of Scotland Plc currently has been holding only about 2 percent of gold in its portfolio compared to around 7 percent at the end of the third quarter. This postulates the magnitude and gravity of gold dynamics at international market and its future. Amidst the unprecedented fall in gold prices in the month of April in line with market expectations of stimulus to be cushioned, citing the improving economy, traders and investors have, since then, been liquidating their physical holdings of gold.

At this point of time, when the yellow metal is looking somewhat faddish, economists and market participants believe that only another serious round of economic recession or recurrence of magnified inflation could head the gold towards the north. Else, the safe haven is believed to float around the current price territory with possibilities of further degradation amidst pressure from the supply side of the market.

It has been also a topic of debate that inspite of the unprecedented rounds of monetary easing globally, and surge in money supply in the major economies of the world, the gold index, internationally, has already declined by 12 percent this year only. Since the US economy has been outperforming, exceeding the forecasts and market expectations, despite continuation of the stimulus package, Quantitative Easing-3, the effects on gold prices has not been seen lately. What this condition signifies is, the current level of quantitative easing or stimulus is not weakening the dollar index, rather boosting the US economy, eventually strengthening the dollar index.

Note: This blog is just an expression of the author’s opinion and cannot be deemed responsible for any losses incurred.