Fund buying spawns bullion blitzkrieg

Gold up at Rs 7,465 per 10 gm; silver, in tandem, closed at an all-time high of Rs 12,345 per kg

Gold prices took another leap and opened strong at Rs 7,475 per 10 gm in the domestic market today on the back of hectic fund-buying. Prices opened at $499 per ounce in London.

Profit booking at this stage brought the precious metal slightly down to Rs 7,450 per 10 gm in the mid-session, it soon started looking towards its new record.

Finally, the most volatile precious metal closed at Rs 7,465 per 10 gm, which Harmesh Arora, head of NIBR Bullion, and vice-president of Mumbai Bullion Association termed "under performance".

Gold perked up to $498 an ounce after slipping to $497 an ounce in the mid-session. Silver price, moving in tandem with gold, closed at an new all-time high of Rs 12,345 per kg.

"The gold trend is still bullish as it being currently appreciated as a good investment option. The upward momentum will continue as funds are still active. Our analysis says the gold in the international market will touch $525 per ounce, and Rs 8,000 per 10 gm on the domestic front, in the next fortnight," said Arora.

Unlike earlier, the dollar and gold are now heading in the same direction as a weakening yen has always benefitted the dollar substantially. A dip in yen always boosts investment in gold.

At present, gold has been successful in attracting investments from mutual funds too. Bhargav Baid of BN Vaidya and Associates said the crisis in Paris is weakening the euro, thereby strengthening the dollar. Hence, dollar-centric trades are bound to gain an edge over their euro counterparts.

"Increased international trade demands more dollar which is the only currency accepted everywhere," he added.

"Inflation fears in America have also helped gold scaling new highs as interest rates are picking up in the US (now 4.8 per cent as against 1 per cent about 15 months ago), having grown consistently by about 25-50 basis points," said Rajesh Mehta, chairman, Rajesh Exports.

US traders are gradually shifting their investment base from crude and real estate to gold which, they consider, a safe heaven. Unlike any other investment options, gold can be encashed at any possible inflated price "� at any convenient time. Meanwhile, Russia's central bank said it is not going to sell any more gold in the market.

With miners there, instructed not to release gold in the international market, reserves are being built there.

Industry experts do not rule out a correction, which may bring gold to $475 per ounce before it may again pick up to the $525 per ounce level. Domestic players too expect the gold price to dip to Rs 7,000 per 10 gm with an imminent correction, likely to be any time after December 2005.