Bullion finally takes a breather

New York gold fell to $622 from day's high of $645.75 n Silver at $13.2 from $14.68

Overseas spot gold and silver prices saw a much anticipated correction today. At 1945 IST, New York spot gold fell to $622 a troy ounce from the day's high at $645.75 and silver at $13.2 a troy ounce from the day's high at $14.68.

The precious metals were highly susceptible to correction, being overbought for a month now, as T Gnansekar, an independent bullion analyst said.

"This is profit booking as the US dollar strengthened against other currencies slightly. Also the market players are squaring off their positions following the huge rally seen in the last four days," said V Sivaramakrishnan, executive director with Kombench DMCC.

He expects precious metals to rise again with Asian indices skyrocketing to new highs and an all-time high crude oil price at $72.49 a barrel.

Earlier in the day, as overseas prices spiralled to new multi-year highs, domestic gold rose Rs 205 to a new all time high of Rs 9,420 per 10 gm and silver rose Rs 700 to Rs 22,535 per kg.

Following this correction, domestic prices are likely to weaken when the market opens tomorrow. "Gold can be around Rs 9,000-9,100 (per 10 gm) and silver just above Rs 20,000 (a kg)," said a trader.

Prices of crude oil and precious metals are rising following a tight demand-supply for crude oil as well as other commodities, heightening Iran tensions, US inflation concerns and as market awaits the launch of new investment vehicles in silver and crude oil.

Spiralling Asian indices are indicating excellent growth prospects in Asia, a region today holding 70 per cent of the global foreign exchange reserves, as Commerce Minister Kamal Nath had stated.

Market players suggest that the rising indices are also indicating an underlying tight demand-supply scenario for various commodities down the year. Sensex today crossed 12,000-level, to close the day at 12,039 points, a rise of 143.57 points from its previous close.

Asian indices are also hinting that the higher-than-expected China's economic growth in the first quarter of the current calendar year may also rub off the dragon's neighbours, said research head of a Mumbai-based brokerage.

Funds and other institutional players are shifting their investments to precious metals, especially gold with is considered to be a good hedge against inflation.

Following spiralling prices, local fresh gold demand has been hit by about 30 per cent. With the marriage season currently on, jewellers expect sale to pick up towards Akshayatritiya, an auspicious occasion that sees good gold demand, on April 30, said Rajesh Saraf, a Delhi-based jeweller.

At present, however, banks and dealers are hesitant and sceptical about the immediate demand.

High volatility and spiralling prices, today led MCX to introduce special margins of 2 per cent on its gold June contract and 3 per cent on silver May contract, with effect from 1700 IST today.

Other futures exchanges, Comex and DGCX also were forced to raise margins today following rising volatility. At 1830 IST, Comex June gold contract was at $649 a troy ounce and May silver at $14.69 a troy ounce, with Nymex crude oil remaining over $72-a-barrel level. But at 1945 IST, Comex gold was at $626.5 a troy ounce and silver at $13.05 a troy ounce.