Firm dollar may bring gold down to $615

Bargain hunters are likely to resurface this week to gain from the current level of gold prices. Besides, enormous buying support from jewellery makers ahead of the lunar new year in February is also likely to push up the prices of the yellow metal.

However, a section of traders believes the lunar new year jewellery sales are already over and the gold may only find support from retail sales. There is also hope for a bullish yellow metal, with fund managers moving back some of their money to the precious metal from stocks. However, many analysts expect a small correction this week, which may take the gold down to $615 on the back of a firmer dollar and low crude oil prices.

Spot gold in London fell to $645.10-646.10 an ounce from $646.60-647.60 an ounce late in New York on Thursday, when it had risen to its highest since early August at $654 an ounce.

In the domestic market, gold witnessed a weekly gain of Rs 165 across 99.5 and 99.9 varieties to settle at Rs 9,290 and Rs 9,340 per 10 gram, respectively.

"Demand is very thin in the domestic market and there is no sign for improvement. Gold, which largely follows the price movement in London, would retreat. Anything below $635 is a good buy," said Prithviraj Kothari, director, Riddhi Siddhi Bullion, and member, Bombay Bullion Association.

Kothari, however, is a little conservative on any possibility of a drastic decline, adding that funds are mopping up the yellow metal overseas. But, the gold trader did not deny liquidity crunch in the domestic market and saw little chance of liquidity easing, as interest rates are still above 9 per cent.

Bhargav Vaidya, proprietor of B N Vaidya & Associates, observed that a correction is due, which may happen any time this week or the next.

Meanwhile, physical trading remained weak on Friday in Southeast Asia, but recent gains in gold prices still attracted selling from investors in Indonesia and Thailand. Premium for gold bars was unchanged at 50 US cents an ounce to the spot London price in Singapore.

Despite correction, overall technicals and sentiment are still bullish, which envisages that bargain hunters may be looking to buy at the current level.

Amid a number of other reasons, dollar rose against yen to as high as ¥121,64 after slightly soft consumer prices cast doubt on whether the Bank of Japan will raise interest rates next month.

The dollar rose against the euro and the British pound after the US durable goods orders for December showed strength. Orders for durable goods jumped by 3.1 per cent in December in line with economists' expectations of a 3.5 per cent gain.

Crude oil edged above $54 a barrel on Friday after losing around 2 per cent the previous day, as cold weather in the US Northeast, the world's biggest heating oil market, countered the effect of a rise in US fuel inventories.

Meanwhile, domestic gold players have high expectations from the Budget, anticipating a duty increase of up to Rs 200 per 10 gram on gold bars from the current level of Rs 10 per 10 gram. The duty would be utilised for the betterment of the industry through initiatives such as hallmarking, Kothari expected.