After recent gold crash, it seems safe heaven asset and dearest of all Indians precious metal is entering in bear market in 2013. Bear market may drift it lower than its face value or fair value. Below are possible factors for recent crash:
- Several Gold ETF are reducing their holdings. George Soros cuts biggest gold ETF cuts holding by 55% in forth quarter of 2012.
- Goldman Sachs cuts gold targets and warned that it could go lower. It even recommended getting out of gold.
- US and world economy seems recovering resulting in strong dollar. Also US Fed indicating ending of stimulus (quantitative easing) which is negative for gold and positive for currency USD.
- Cyprus and Portugal were rumored to need to sell some of its gold to cover its bank bail-outs. While small at only about 350,000 ounces, there was a fear that other weak European countries with too much debt and sizable gold holdings could be forced into the same action. Cyprus officials have denied the sale, so the question is still in debate, even though the market has already moved.
- Several speculators are now believe that Gold bull run is over. It should go down.
There may be physical demand of Gold from Asian countries like India. But it may not be able to prevent this fall. During recent fall, if someone wants to buy gold coin, no jeweler would like to sell at low prices. At MCX, Gold price of May contract is around 26000, all jewelers even reputed like Kalyan, TBZ are selling coins at 28,000+ prices.
For India, it is assumed that fall in gold price will reduce CAD (Current Account Deficit). It may not be true because if price is down, people will buy more. Gold in India is the best asset to hide black money. In last budget, it was indicated to present PAN card to buy gold more than 50,000. But it was not implemented due to resistance from Jeweler community. India need to reduce gold demand irrespective of its market price.
Above chart indicating steep fall in gold price clearly indicating gold is in bear market. It is expected to fall at 21000/22000 levels.