Gold glitters, up Rs 40 per 10 gram

Trigger: central banks overseas may raise holdings

Domestic gold prices today rose by Rs 40 to Rs 7,660 per 10 gm on news that central banks in China, South Africa, Argentina and Russia are considering to raise their yellow metal holdings.

This speculation, along with physical buying, inflation fears and weakening of the dollar against the Euro, led overseas spot prices to near their highest level in the last two weeks.

At 1830 IST, overseas spot gold traded at $517.10/517.60 an ounce. Earlier, the London trade today closed at $514 an ounce. It had reached a 25-year high of $541 an ounce on December 12. The euro had gained overnight amidst speculation that European Central Bank may increase interest rates in the near-term and this has supported gold prices today.

Despite thin trade, physical buying in Asia trade today gave a boost to prices. Physical demand from India has come back to the market while demand from China is expected to pick up ahead of Lunar New Year.

"Bullish tone looks set to continue as large scale hedge funds and speculators window dress their positions for the year-end. For now, support should continue to be found at $513/505 while resistance above is expected between $520-525," said James Moore of Thebulliondesk in an emailed report.

Central banks, mainly in the US and Europe, hold almost a fifth of the world's gold supply as a reserve asset and are the biggest holders of the yellow metal. Russia's central bank had said in November it may double its gold reserves.

Similar news came from China's central bank yesterday evening when a China Galaxy Securities economist said that China may increase its gold holdings to 2,500 tonne from current 600 tonne, according to Xinhua News Agency.

According to industry experts, if China increases its gold reserves to 2,500 tonnes, it will become the world's fifth largest holder of the yellow metal after the US, Germany, the International Monetary Fund, according to data provided by World Gold Council.

At present, China is the tenth largest holder of gold in the world, WGC report added. The huge fund liquidation, which is traditionally seen around the end of calender year, is absent this time around.

Analysts feel that that current uptrend of prices and gold emerging as a safe haven investment vis-à-vis currency has led to this change of scenario.

"Gold prices are likely to be on uptrend and will rally as we enter the year 2006," said V Shivaramakrishnan, a Dubai-based analyst.