The Hindu Business Line : Gold picks up, taking cue from global market

As anticipated, with international gold prices going into over-bought territory (close to $630 an ounce), the market witnessed some correction on Friday, the metal losing about $9 from the day's high. Profit-taking was evident. The extent of further fall remains uncertain. December contract was traded at $629.2 on the COMEX division of NYMEX on Friday. Spot gold in London was $626.83 an ounce.

Taking a cue from overseas movements on Wednesday and Thursday, gold prices in the country picked up. It was quoted at Rs 9,450 per 10 gm (.995) for immediate delivery in Mumbai, handsomely up from a low of Rs 8,800 before Diwali.

December gold contract on the Multi Commodity Exchange (MCX) traded at Rs 9,168 on Friday.

A shift in fund activity from crude oil to gold has triggered the rally in gold, said Mr T. Gnanasekar of Commtrendz, pointing out that there has been no significant price movement in crude oil.

Interest in gold is now supported by a weak dollar. High crude oil prices and geo-political concerns that normally support gold prices are absent from the markets, said Mr Gnanasekar.

Prices can breach the resistance range of $630-632, and reach a potential price level of $640 in the background of poor US economic data, he said.

However, if there is a resistance at $630-632 levels then a $10-15 correction in the prices can be expected, he added.

Prices will go up further from here, said Mr Mukul Sonawala, President, Bombay Bullion Association, while considering a minor correction of $10-15.

`Good Indian demand'

There is a good Indian demand, said Mr Sonawala attributing it to the boom in the stock and real estate markets.

While acknowledging the rally in gold prices, a possibility of a halt in the run or a dip of $15-20 in the next 10 days can be expected, said bullion analyst Mr Bhargav Vaidya, B.N. Vaidya & Associates.

In the long-term (one year timeframe), a big correction is expected after $640-$650, believes Mr Vaidya.

While the local demand at the current price levels may be affected there is no scope for scrap sales as it is inconsistent with the Indian tradition not to sell the yellow metal, he said.

One may appreciate the fact that there may be profit-taking and high deliveries on the futures exchanges at high price levels, he added.

There is lesser hedging activity owing to inflation in the yellow metal, which is known to be a hedge against inflation, said Mr Gnanasekar.

Gold prices in the international markets had peaked at $730 on May 12, and thereafter fell to a low of $542 on June 14.

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