Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Opinion / Online-views/  Gold prices shine on inflation outlook
BackBack

Gold prices shine on inflation outlook

Gold prices shine on inflation outlook

Premium

Fund manager surveys and strategy reports talk alike about risk appetite returning to investors and developed market equities being the play of the day. However, after a pause in January, gold prices have been quietly inching up, before jumping to a record of $1,434.90 (Rs64,714) an ounce (28.35 gram) on Tuesday.

It is not hard to see why. As tensions grow in more Middle Eastern countries such as Oman and Libya, following successful revolts in Tunisia and Egypt, the spectre of inflation arising out a possible oil shock is never far from investors’ minds. Notwithstanding Saudi assurances on supporting supply, crude prices are showing no signs of easing. Brent crude is again trading near $116 per barrel, after falling to $110 last week.

No wonder, investors are buying gold to hedge against rising prices. To give one example, gold rose 30% in 2010—when the inflation problem started—against a 17.4% rise in the Sensex. That also partially explains the multi-decade high of $34.74 an ounce reached by silver, which benefits from the spillover demand from gold.

Not only that, inflationary expectations are rising across the world as developed countries emerge out of recession. In February, the US and the Eurozone recorded their fastest post-crisis expansion in manufacturing. February purchasing manager indices data across the world showed factory input costs rose significantly over a year ago.

On Tuesday, US Federal Reserve chairman Ben Bernanke talked about a “relatively modest increase in US consumer price inflation". On the same day, the European Commission hiked its inflation forecast for the area to 2.2% this year against a previous 1.8% estimate.

And that’s just gold’s demand as a safe haven against inflation. Despite a 30% increase in gold prices in 2010, Indians bought 963 tonnes of gold, about two-thirds more than the year ago, according to the World Gold Council. The growth in China, another country to suffer high inflation, was even more. The industry lobby expects the two highest consumers of the metal to demand more this year.

That perhaps explains why although prices subsequently cooled down a bit on Wednesday, the overwhelming consensus seems to be further firming up of prices this year.

We welcome your comments at marktomarket@livemint.com

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 02 Mar 2011, 09:36 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App