Gold, steel on the same trajectory? What gives? - Daily News & Analysis

In a strange coincidence, gold and steel prices in India have traced a similar parabolic path since the start of the 2008 financial crisis. One theory is that prices of the two metals should be inversely related. "During economic slowdown, steel prices generally move down due to slack demand from sectors like real estate, infrastructure and automotive. During such times, people also buy gold as a safe-haven investment, leading to a jump in its price," said Naveen Mathur, associate director – commodities and currency, Angel Broking. But such inverse relationship does not always obtain in real life. For instance, in recent times, steel prices were driven up by mammoth Chinese consumption and robust Indian steel market. This coincided with the global financial crisis that forced central banks across the world to flock to the bullion market. According to Bloomberg data, on April 18, 2008, steel price in India stood at Rs 39,250 per tonne while gold price, which is internationally benchmarked, was $973.2 per ounce. For the period from April 2008 to March 2013, both gold and steel prices showed a largely parabolic trajectory. In fact, a chart (base = 100) plotting both prices from April 2008 till March-end shows their path has been more or less similar, with gold displaying a more pronounced upward movement (94.214 to 165.28) than steel (53.50 to 97.45). "Over a long period, both steel and gold had been on the same trajectory even in the pre-2008 era," said Vivek Gupta, a seasoned steel trader and dealer (and a savvy gold investor) in Mumbai, who pointed out the trend. Gupta said despite global triggers, both gold and steel prices have been moving almost in tandem. Only, gold price fluctuations are mercurial and faster than steel's. Commodities expert Vijay Bhambwani said gold prices rose in the last few years as the developed world kept printing money, investing it in gold during economic downturn, while steel prices rose on demand in the developing world. But too much should not be read in the seeming correlation nor any attempt made to predict price trends based on this, he cautioned. Yet, it appears the recent downturn in gold prices could well have been predicted by tracking steel prices. According to Bloomberg data, steel prices started their over 10% slide since September 2012 to fall from Rs 42,750 per tonne to Rs 38,250 in March 2013. Gold prices crashed 14% from a high of $1,608 per ounce in March to $1,376 on April 16. "That's just a  coincidence," said Ramesh Iyer, vice-president – product development, NCDEX, India's second biggest commodity exchange. "We should not try to read too much into it. Steel is not as strongly internationally benchmarked as gold. Domestic factors, too, play their part in determining steel prices, but gold is internationally same." Going ahead, the incipient gold rebound may last for another six months but steel is unlikely to show any positive movement due to slack demand in India, Iyer said. via Business - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNHtS_4yB7B6v_t78pY4YVKPax9LMQ&url=http://www.dnaindia.com/money/1826673/report-gold-steel-on-the-same-trajectory-what-gives

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