Gold Silver Reports (GSR) — Gold Overall for a Resumption of last-month’s bullish-rally, gold prices would need to beat the 6-year high. Alternatively, for a decline to take place, $1380 would need to be penetrated.
What is up with the yellow metal (Gold)?
Spot Gold Technical Analysis Reports – In case of further losses below the immediate support of the 23.6% Fibonacci retracement level of the upward movement from $1266 to $1439, the way could open for the $1380 Level. A decrease below this significant barrier would shift the neutral bias to bearish and meet the 38.2% Fibonacci of $1372.
In the budget presented on 5 July, FM Nirmala Sithraman proposed to increase customs duty on gold and other precious metals from 10% to 12.5%. The duty will push up the price of the yellow metal in India.
But even without that, there are good reasons for the price of gold to shoot up from where it is currently due to a curious mix of global circumstances, which eerily resemble prevalent conditions in the late-2000s.
As dark clouds gather over the economic prospects of large parts of the world, the gold bulls are back. There are enough indications that the American economy is slowing down, and, hence, the Federal Reserve of the US, the American central bank, is likely to unleash another era of easy money (when interest rates are kept low to encourage borrowing). And gold is the anti-thesis to easy money… the historic hedge against rising economic risk and inflation. Hence, the price of the yellow metal has been rising.
The 2011 Peak
On 15 September 2008, the day Lehman Brothers, the fourth largest investment bank on Wall Street, went bust, the price of gold closed at $775 per ounce (one ounce equals 31.1 grams).
This was the end of an era, which signified the increasing financialization of the global economy. Big financial institutions across Europe and the US had to be rescued by the government and central banks. The global economy went into a tailspin.
In this environment, the Federal Reserve decided to print and pump money into the financial system. This was soon followed by the Bank of England, the Bank of Japan, and the European Central Bank. The idea was to flood the system with money and drive down interest rates. This came to be labelled as an era of easy money.
The hope was that at lower interest rates, people would borrow and spend more and companies would borrow and expand. In the process, economic growth would come back.
Meanwhile, money printing got the gold bulls going and the yellow metal rallied big time over the next three years. Gold has always been seen as a hedge against pure paper money running wild.
While central banks were printing money in the hope of lowering interest rates, there was another angle playing out. With so much money being created out of thin air, more and more new money would chase the same set of goods and services, pushing up prices and, in the process, creating very high inflation. The only way to protect oneself against the oncoming inflation was to buy gold, or so we were told by all the gold bulls.
Of course, everyone wasn’t bullish. Nevertheless, bulls predicted that gold would cross $5,000 per ounce and even $10,000 per ounce. Gold touched an all-time high of $1,895 per ounce on 5-6 September 2011. It didn’t even cross $2,000 per ounce.
Anyone who bought gold in dollars that day in September, eight years ago, would still be sitting on losses of more than 25%. What about those who bought gold in rupees?
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