Buyers to cash in on gold correction

The fall in domestic gold prices is raising hopes of the revival of physical buying, said traders and analysts. Price of .999 purity gold (ex-Mumbai) was at Rs 8,000 per 10 grams, compared with Rs 8,260 yesterday and that of .995 purity at Rs 7,950 per 10 grams, compared with Rs 8,220 yesterday.

According to a Barclays Capital note, the current price corrections are providing a good opportunity for physical consumers, "don't miss the boat again. Supply and demand fundamentals remain constructive for the uptrends to persist".

"Physical buying will set in once the prices firm up at a level now," said a top South-Indian based jeweller. The fall in domestic gold prices has been in tandem with international prices. At 1800 IST, spot overseas gold traded at $545.35 an ounce.

Tuesday night, gold prices had witnessed 5 per cent correction, the largest one day fall in 13 years, from $569.3 an ounce to $548.25.

Following large scale profit booking along with funds liquidation, gold futures on the Comex division of the New York Mercantile Exchange fell $19.5 to close at $554.80 an ounce.

The yellow metal's fall was supported with the US dollar firming up following news that a Federal Reserve official reiterated expectation of further rise in US interest rates and German central bank's gold sale plans.

Late last month, tensions over Iran's nuclear ambitions had pushed gold to a new 25-year high of $574.60 an ounce.

The extent of fall in prices in a day's time also took a large section of the market by surprise. Most attribute it to the overhang of long positions by the hedge funds and their subsequent liquidation.

"Moreover, when the physical demand is less than half of what it was earlier, the usual buying supports and bargain-hunting that ocuur during pullbacks seem to be missing," said an analyst.

"I feel yesterday's fall was more of technical selling and flurry of stop-loss triggered rather than due to the fall in crude oil," said V Sivaramakrishnan, executive director with Dubai based Kombench DMCC.

Market players expect the fall to continue to about $535-540 an ounce following which the yellow metal is set to rise again. It is expected to eventually hit $600, a level last seen in December 1980.

"The current correction is positive for the long-term bull run and should give the metal the legs to clears the current 25-year high of $575 and push on towards $600. Support below is now pegged at $545/35," said James Moore of bulliondesk.com in an emailed note.

Market is expecting US trade deficit data scheduled Friday and next week's TIC to help give gold short-term direction.

"Now the data carries more importance than ever before as the US Fed during the last two FOMC meetings has clearly stated that the impending decisions would be based almost solely on the expediencies of the situation. Trade deficits are expected to hang around the $63-64 billion levels during December. However considering the Christmas/New year season, I think even a higher number is possible which can help gold if it turns out to be higher," said Sivaramakrishnan.