Gold may decline further on the back of a strengthening dollar. Today, the yellow metal was trading below $1,100 an ounce compared with $1,230 three weeks ago.
Almost a month ago, when the Dubai World’s debt crisis came unfolded, leading to strengthening of the dollar, investors sold their risky assets using Dubai development as a trigger to book profits. In past months, investors were borrowing cheap in dollar, as interest rates in the US were close to zero and buying high yielding assets. These investors were waiting for a trigger to unwind this carry trade and book profit prior to December-end. In the last couple of years, they have not been able to give returns to investors.
In the last four weeks, post-Dubai crisis, gold and silver have lost 7-8 per cent as the Dollar Index strengthened 4.3 per cent but base metals have not fallen till now.
Tarang Bhanushali, an analyst with IndiaInfoline, said, “Most metals are at their 12-month highs. Gold corrected sharply as the rally was weak.”
Today the yellow metal was trading at $1,093 an ounce in early trade in London. In Mumbai, standard gold tumbled by Rs 280 per 10 gm to close at Rs 16,670 from overnight level of Rs 16,950. Pure gold tanked by Rs 275 to end at Rs 16,755 from Rs 17,030 yesterday.
Base metal prices depend on the Chinese demand, which is still rising. Data released by the Chinese customs department showed that copper shipments to China had increased in November also.
“The broad price recovery in commodities is getting close to maturity now and we expect more diverse market trends in 2010,” said Barclays Commodities report. It says: “In Q1 we still see some upside potential for oil, some base metals and agricultural markets. A slowdown in China’s import demand is the main threat to a continuation of the recovery.”