By Banikinkar Pattanayak
Mumbai: As gold scaled a two-year high and settled up 4.7% on Friday after Brtain chose to exit the EU, far outperforming a drop of 3.6% in S&P 500, 2.2% in Sensex and 2.5% in the CRB Commodity index, analysts were quick to wager on a rally in the precious metal in the coming months, reports Banikinkar Pattanayak in New Delhi. But while gold has consolidated its position as a safe-haven asset — at least in the short term — during most of the crises over the years, there are instances when its price movement defied this conventional wisdom. Gold retreated some 10% in the first six months after the third round of quantitative easing by the US in September 2012.
This is in a stark contrast with a jump of 16% and 12%, respectively, in the first six months after the QE1 and QE2. Such a retreat shattered the notion that improved liquidity and rock-bottom interest rates always created the stage for a bull run in the precious metal. Gold has also recorded a decline since the US credit rating was downgraded by Standard & Poor’s in August 2011.
Nevertheless, odds are in favour of a rally in gold this time around, analysts said, adding the precious metal could cross $1,350 per troy ounce in the next one week from $1,320 on Friday.
Already, the Bank of England has stated it would take whatever action is necessary. If other central banks also follow suit, interest rates may move further into the negative territory in parts of the world, and a hike in the US interest rate is likely to be postponed. Also, though Britain has...