Gold advocates say there remains deep-rooted demand for the metal that has captivated humans since it was fashioned into decorative objects on the coast of the Black Sea 6,000 years ago. In countries like India, where weddings and other rites are steeped in gold-gifting, this year’s price drop caused long waits at jewelry stores and delighted Supriya Gupta, a teacher in Kolkata. She picked up a toe ring, anklets and a tiara for her soon-to-be married daughter and a pair of earrings for a younger one.
Gold-Gifting Frenzy
“If the price continues to fall, we can always buy more,” said Gupta.
Dubai is pressing ahead with plans to create a gold storage, trading and refining hub on a par with Switzerland, announcing in July it will build the world’s tallest office tower to house commodities traders.
“People own gold because they don’t trust the central banks,” said William Fleckenstein, author of “Greenspan’s Bubbles: The Age of Ignorance at the Federal Reserve,” a 2008 book arguing that the Fed caused repeated asset bubbles with artificially low interest rates. The price will be “much, much higher” within five years and stocks will crash again, he said.
Even seasoned forecasters say the metal’s future price is hard to predict, dictated more by sentiment than standard measures of supply and demand. Bulls point to the surge in jewelry buying and nine consecutive quarters of net buying from central banks, among them Russia and Kazakhstan. Bears contend the banks often buy at the wrong time -- adding 203 tons this year as prices dropped, for example, leaving them with $284 billion of losses on gold holdings of 31,910 metric tons through May, according to data from central banks compiled by the International Monetary Fund.
Exchanging Gold
Jewelry, less than half of all gold purchases last year, is also a marginal factor compared with the wave of speculative investments, skeptics say. From 2008 to 2012, investors worldwide bought about 8,000 metric tons, the equivalent of more than three years of global mine production, according to the World Gold Council. In the seven months through July, about 25 percent of the gold in one type of investment, known as an exchange-traded product, has flowed out.
“Gold is still a bubble,” said Ronald Wildmann, managing director of Basinvest AG in Zurich, which manages 100 million Swiss francs ($107 million).
Going Mainstream