Global price surge keeps yellow metal on the boil

Gold is glittering as the domestic spot prices today rose by Rs 60 (from Tuesday's close) to Rs 7,820 per 10 grams. This was largely in line with rising international prices where spot price of gold surged to an intra-day high of $535.20 an ounce, its highest level in three weeks.

Domestic physical demand is at its lowest following rising prices, said a Mumbai-based trader Suresh Hundia, who is head of Hundia Exports.

At 1800 IST, overseas spot gold traded at $532.50 an ounce and domestic spot at Rs 7,780 per 10 gm.

The rising prices of yellow were following the weakening of the US dollar against other currencies. Euro today hit a high of 1.2065 a dollar as yen rose to 115.52 a dollar.

Market players suggest that depreciation of the dollar is likely to continue till January as US Federal Reserve Chairman Alan Greenspan is set to retire in the month-end.

Other factors that supported gold rise were dovish mood in the minutes of US Fed's FOMC meet, which usually is quite hawkish; rising energy prices; increasing inflation worries and weaker US ISM data.

The greenback, depreciated minutes after the FOMC policy meet on December 13, 2005, was released. It suggested that the US rates had almost peaked and, thus, were not supporting the dollar's status as a high-yielding currency.

Traders are expecting a correction in the late trading (when the market opens in New York) today. "Gold has a strong support at $530.5 an ounce which will be tested today. Its next support is at $525. However, after today's correction, the yellow metal is likely to move up and near its 25-year high of $542," said V Sivaramakrishnan, executive director of Dubai-based Kombench DMCC. In December 2005, the yellow metal had neared its 24-year high of $541 an ounce.

Further, a large section of market players is expecting another 25 basis points hike in interest rate, the fourteenth consecutive one, to 4.5 per cent, when the FOMC meets on January 31.

According to Barclays' report, gold is expected to remain bullish in the medium term. Consolidation above the 700-week average throughout 2005 has built a large springboard for further gains... (Technically) there are still higher highs to come with 551 the next major target. "Ultimately, (In the) medium term, we look for the market to trend well above 600," the Barclays note added.

The yellow metal is forecast to gain further in 2006 as funds and institutional investors see it as a safe-haven amid rising inflation. Gold prices have doubled in the last five years and the sentiment remains strong.

Further, the 3,000 tonne-a-year shortfall in global output and intention of various central banks to increase their reserves are pushing gold prices up.