The action doesn't seem to be dying down in gold. The year 2005 is expected to see the yellow metal average well above the $400 per troy ounce level and investors who haven't hopped on to the bandwagon yet can consider their move.
According to Krishna Nathani, head of research at Indiabullion.com, "The outlook for gold is bullish in the short term and investors should look to liquidate once the levels of $437-$447 are reached internationally. However, the prices are subsequently expected to hit $400-$410 levels which would be a good time to start buying and hold for the long-term."
Bhargava Vaidya of B N Vaidya and Associates, a Mumbai-based bullion consultant, concurs, adding: "Gold should be held for store of value and at any given time investors should hold 5 per cent of their portfolio assets in gold."
He further added that gold would be an ideal asset to hold over a long period when it attains a stable value in real terms. As an asset it is also a great hedge against inflation.
The International Monetary Fund's decision to sell gold to finance debt would also lead to large quantity of gold holdings to be sold.
This could be taken as an indication to get out of the gold market as the world market is expected to crash. However, Vaidya reasoned that for the operations to take effect, 85 per cent of the panel should vote and even if one country opposes it is no likely to come through.
According to the weekly price chart, in the long-run gold has corrected by 23.6 per cent and for the bull run to sustain the prices would have to correct up to a minimum of 38.2 per cent, which is indicative of slower prices towards the middle of the year. This is a period where investors could consolidate their holdings.
Gold has remained range bound over the past two-three weeks. The June contract of Comex gold on the New York Mercantile Exchange ranged between a low of $423.50 and a high of $430 during the last week but finally broke the range on Monday and closed at $434.17.
During the period prices of standard gold (in Mumbai) too moved within a band from Rs 6,135 per 10 gm on Monday to Rs 6,110 on Saturday.
While the fundamentals have had little influence on the performance of precious metals, the dollar's correction and the euro's rally are expected to push up the price of gold in the short term.
Tuesday's producer price index data were better than expected, which led to a correction in the dollar -- there's another leg-up for the yellow metal.