The Hindu Business Line : Gold scales to new high near $900

Gold prices in the London were fixed at $893.75 an ounce, while in India prices were Rs 11,370 per 10 gm (99.5 fineness) on Friday against Rs 11,170. Pure gold (99.99 fineness) was at Rs 11,420 against 11,330 a day before.

Silver, too, rose with the yellow metal to reach $16.28/oz. In India, silver was quoted at Rs 20,650 per kg on Friday against Rs 20,280.

Though the titular landed cost of imported gold in India stood to reflect the international price surge, it has no real connection to the current market price, which is running at heavy discounts.

India’s so called voracious demand has simply disappeared. While there is no demand in the market, bullion dealers say that they would not build up their inventories even if prices were to correct at $850 an ounce, explained Mr. Prithviraj Kothari, Director of RiddiSiddhi Bullions Ltd. We cannot take such huge price risks on our books unless there is an evident order, he explained. As an obvious fall out of poor demand, authorised banks have not placed any consignment orders for import of gold in the last 15 days, said a bank official.

While Indian demand factor has been rendered insignificant to the entire rally in bullion prices this year, so has the Indian market detached itself to the prices corresponding to the international prices. Currently, there are huge volumes of scrap sales taking place in the market that is sufficient to meet the poor demand, said Mr Kothari.

Refined gold is bought and sold at discounted prices as opposed to imported price of gold bars, explained Mr Sanjay Hundia, President of Bombay Bullion Association.

Therefore, the result is a widening disparity between the domestic market price of gold and the banks landed cost of imported gold that corresponds to the international prices.

Banks cost price has remained well above the market price and was quoted at Rs 11,470 per 10 gm of .99 fineness on Friday.

However India Exchange Traded Funds listed on NSE did not remain indifferent to the international price.

If someone is of the view to purchase gold now despite high prices, ETF route would be a better option as the price and return to the investor is transparent, said Mr. Bhargav Vidya of B. N. Vidya and Associates.

Although returns only on Benchmark and Kotak ETF’s are closest in tune with the international price rally while others are a tad behind.