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G. Chandrashekhar

Mumbai, Oct 24 Dhanteras (holy thirteenth day of this lunar month) and Diwali are set to bring cheer to gold buyers even as domestic prices track the fall in international market.

Gold was quoted at around Rs 11,500/10 grams early evening on Friday here. In the overseas markets, precious metals prices dropped sharply across the board because the dollar hit a two-year high against major currencies even as concerns over the growing possibility of a global recession took centre stage. In particular, gold prices fell below the psychological $700 an ounce.

The yellow metal quoted at $691/oz in the early trades. Reflecting the bearish sentiment, prices in the Mumbai market too declined by as much as Rs 500/10 grams. However, the Indian market failed to obtain the full benefit of overseas price fall because of a weak rupee and little prospect for recovery.

While the fall in domestic gold prices should encourage some physical buying to feed the festival demand, several market participants are likely to liquidate their position to raise money to meet margin calls in the stock market that crashed, remarked an analyst. With the mood across markets sombre and little clarity on the future course of the markets, many players are willing to swear by cash as a safe haven. This is reflected in muted sales of gold in the marketplace. At this point of time, with crude too trending lower continuously, gold’s position as a hedge against inflation has turned suspect.

The global gold market will be in small surplus in 2008 due to decline in jewellery demand. Economic slowdown shifting to emerging markets is another factor that may compress demand for the precious metal. Once business confidence returns, the dollar can potentially start to weaken against the euro which may begin to lift gold prices. The timeframe for such an eventuality is unclear, commented an expert.

More Stories on : Gold & Silver | Commodity Markets

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