19 February 2013, 17:49

Gold prices ready for a surge

 Gold prices ready for a surge

It is known that the best time for gold’s price manipulation is the period when the Chinese buyers of the yellow metal are on holiday. Contrary to the popular belief that the main driver of gold prices is the hedge fund activity, the real driver of the gold prices is the demand from China and India. In both countries there is a “cultural demand” for gold, but recent years have shown that gold is gaining popularity as an “inflation hedge” available to the common man.

The demand from India has been growing so fast that the government decided to institute an additional tax on gold acquisitions in India, but it doesn’t seem to curb the demand of gold.

The latest drop in gold prices was attributed to price manipulation and this is relatively common perception. James Rickards, a councilor to the Director of National Intelligence and author of a book dedicated to currency wars, tweeted: “What better time to attack gold than when China is on holiday? Blatant manipulation is such an adrenaline rush.”

GoldCore reports that the end of the New Year holidays in China brought a spike in volume on the Shanghai Gold Exchange as Chinese investors took advantage of the low prices. It is safe to assume that at a local price increase is likely as the biggest buyers of gold return to the market. India’s gold bullion traders have stepped up the intensity of gold acquisitions in order import as much gold as possible because there is speculation of another tax hike on gold acquisitions. This can be an additional factor that could lead to a surge in gold prices. Traders and industry experts believe that additional tax hikes will not become an effective deterrent for gold buyers. The World Gold Council estimates that demand for the year 2013 will be around 965 tons of gold from Indian buyers alone. At the same time, the demand from central banks is growing steadily and is at its highest level since 1964. A growing demand which requires physical delivery and is not sensitive to “short squeezes” organized by market manipulators could is likely to lead to further price increases.

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