Gold may continue to see recovery on Cyprus worries

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Gold may continue to see recovery on Cyprus worries
Worries over Cyprus not getting its bailout package, saw gold gaining ground this week. In fact, in 2013 gold has been losing ground and is heading for one its worst performances in recent years. Investors are beginning to shift to riskier assets like equities, in the past few weeks as economic recovery particularly in the US gathers steam.

There has also been a steady drop in the demand for gold. According to the World Gold Council in 2012 annual investment volumes declined. There was also a 17 per cent drop in demand for bars and coins, while jewellery saw a 3 per cent decline in demand volume to 1,908 tonnes. The supply of gold contracted by 1.4% to 4,453.3 tonnes in 2012.

However, worries over a Cyprus exit could see gold prices recover in the next few weeks. If a bailout agreement on Cyprus for some reason is not reached, analysts say, the international prices of the metal could look at $1,625 an ounce, a price not seen since February.

Gold and equities are moving in opposite directions. In September 2011, international gold prices hit a record of $1920 an ounce as worries over Greece exiting the euro zone region came to the fore. Equities at that time plunged to an abysmal low. This time equities are rallying on hopes of an economic turn around across the globe, while gold has been falling. In fact, a record $4.1 billion was pulled from gold ETFs in February, the largest single month of net outflows from a prominent Group managing gold ETFs.

It's possible that unless there is some kind of economic worries across the globe, gold is unlikely to see a sharp recovery, though in the short term it may rally on account of the crisis in Cyprus.

Read more about: gold, cyprus
Story first published: Saturday, March 23, 2013, 10:59 [IST]
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