At the outset, I wish you all a Very Happy, Prosperous and Healthy New Year!!
I am back to gold this time. It has been a very interesting 2011 for gold and I thought that a few things were worth mentioning.
Gold started 2011 at around 1375$ and ended it around 1550$. 11th year in a row of positive returns. That is a BIG bull market. But what happened in the second half of 2011 PROBABLY indicates the direction gold may probably take in 2012.
What the starting and final quote of the year 2011 for gold does not tell us is that has touched 1920$ in September 2011. Ballooning deficits and money printing central banks had set it up nicely for gold.
Greece was on the verge of default in September, when gold touched 1920$.
Soon enough, Italy came with its own version of the problem in November, which was of course, far more serious than the Greece issue. Gold touched 1800$. And a little later in December, the European Central Bank came out with its bazooka, almost.Gold touched 1750$ then.
Almost everything in the paragraph above is positive for gold. But with each incremental positive news, gold kept making lower price marks or "lower highs" as a technical analyst would call it. Once the positive news flow subsided, gold started dragging down and ended 2011 around 1550$.
So there is a little more to gold in 2011 than just the 12-13% return it generated in the year start-to-end.
From Greece to Italy and quite a few other nations facing similar problems, gold should have ended the year much stronger. Almost everybody was and is still bullish on gold.The latest survey by London Bullion Metals Association has indicated that people in the trade expect gold to cross over 2000$ in 2012.
But gold prices seem to suggest that we are PROBABLY headed for not a such a great 2012. I will not be surprised if we end up seeing a quote of 1200$ or lower sometime during the year 2012.
IF, and its a big IF, that happens, does that signal the end of the long bull market in gold??
Well in December 1974, gold touched 185$ and then went to go as low as 105$ in August 1976. That is a fall of more than 40%. When we are talking of a fall from 1900$ to 1200$, it is not very different.
But August 1976 to December 1979, gold went on to touch 800$!!
So even IF gold does fall to 1200$, we should be careful with our opinions.
All this while, we have been discussing gold prices in USD terms. So what does this imply for gold prices in INR terms. Now that becomes quite complicated because it has to deal with USD-INR exchange rate.
I have discussed that before. In fact it was just the preceding article.
I found it easier to make a guess for gold prices in USD terms but there is a good chance that I will get it wrong, so I will not even venture into trying to make a guess for gold prices in INR terms.
Let me know if you can figure it out!!
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