New Delhi, April 22: The dramatic drop in domestic and international gold prices over the past 10 days has made investors confused and worried over the future of the precious yellow metal. The price decline that happened in April, the steepest in 30 years, has strongly impacted gold's appeal for the portfolio investors. Bankers say they received a barrage of panic calls from rich clients who have been persuaded to hold 2-10 per cent of their wealth in gold.
For years now, gold has been in a parabolic move, but the recent plunge in gold price has wiped $1 trillion off the value of global reserves of the precious metal in just a matter of weeks. Rising from the low of $254 an ounce in 2001, the gold prices have surged to the peak of $1,920 in 2011. In hectic selling that began on April 12, the price has corrected from $1,580 an ounce to $1,380, dragging even other metals down. Silver too has sunk from $28 to $23, while copper is down from $7,500 to $7,100 a tonne. Analysts have termed it a bubble, in search of a pin.
For a very long time, gold has been a safe haven in times of political and economic crisis. It is still the best bet for the worst of times, and as a hedge against high inflation. To some extent, the recent fall in the price of gold may reflect a decline in fears of imminent crisis and inflation. The World Gold Council (WGC) feels the recent plunge in gold prices is because of short-term traders in the futures market. According to Bank of America Merrill Lynch (BofA-ML), Cyprus' announcement to sell gold reserves was a key trigger behind the recent meltdown, as it raised concerns that other peripheral nations may follow suit. Some analysts point to a massive sale in gold reserves held by investment funds known as exchange traded funds, or ETFs, as well as the broader shift by investors back into equities. In the past week, over $2 billion has been pulled from the US-listed SPDR Gold Trust, the world's biggest bullion-backed ETF.
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