Will Gold Glitter again?

The volatility in the gold price has brought so much ambiguity and it is so much debated than any other issue these days. The yellow metal which is considered as a great asset and the first love of any investor has put a question mark on its credibility due to the price instability.

The EU crisis could well be the reason for the massive swing in gold prices along with austerity measures taken up by EU governments. Most of the EU countries apart from Germany which adopted austerity measures haven’t had success till date.

Borrowing has hit the highest levels in many EU countries, even though the fiscal measures put forwarded by the creditors were so strict. Germany, the only EU country which is not affected by recession which is in debt with only 0.3 GDP during the last quarter, doesn’t want to be a savior for the rest of EU.

Speaking at an event hosted by Deutsche Bank in Berlin, German Chancellor Angela Merkel requested EU countries to prepare to cede control over certain policy domains to EU institutions, if they want to fight debt crisis. She added that Germany can’t take up the cross and they are not planning to give more credit to other EU countries.

This has created much tension between EU. Germany is very careful about their economic planning does not want to get into any plan where the country has to pay for that.

The rest of the EU countries are forced to dispose their gold reserve to pay off their debt and this may lead to further decline in the gold price .The month of April witnessed so much volatility in the gold price due to the assumption about Cyprus offloading their gold reserve. In this anticipation gold price came down to $1500 an ounce for the first time since July 2011

EU finance ministers met in Dublin, decided that the financial aid to Cyprus will never go beyond € 10bn.

Gold prices have irrationally inflated during the last two years and the decline in the price can be counted as a correction. It is likely to find support around $ 1185-1225.

Another interesting fact is that the US economy is improving with interest rates still at a lower rate with a buoyant stock market at both USA & Japan and Euro Zone still struggling.