Gold may lose lustre on low demand

MARKET OUTLOOK

Gold is likely to retreat towards $670 next week in the absence of demand from jewellers. Jewellers consume about 23 per cent of the total gold produced globally. Therefore, any decline in their demand has an impact on prices.

"Generally, physical buying slows down when the price crosses the benchmark $700 and this time will not be any different," said an analyst.

The yellow metal closed at $701 an ounce in London late on Friday after an intra-day high of $703 for the first time since May 2006 on signs that turmoil in credit markets is increasing demand for the metal as a safe-haven investment.

It gained 3.9 per cent or $26.02 last week, the biggest advance since the five days ended November 3. In euro terms, the metal climbed 5.9 per cent this year, while it rose 9.8 per cent in dollar terms.

In New York, gold for December delivery rose $5.10, or 0.7 per cent, to close at $709.70 an ounce on the New York Mercantile Exchange. The metal earlier climbed as high as $716.50, the contract's strongest intra-day level since April 20.

A strong demand from stockists fuelled by the festival season, coupled with strong international guidance, has boosted gold prices in the domestic market. Standard gold in the Mumbai bullion market perked up to Rs 9,240 per 10 grams, a rise of Rs 170 from the previous day. Similarly, pure gold jumped to Rs 9,290 per 10 grams.

In Delhi, a firm global trend sparked buying on the bullion market, pushing gold prices to an over four-month high, surging by Rs 100 to Rs 9,300 per 10 grams.

Gold for December delivery on the MCX, however, remained relatively calm, with the price rising marginally higher by Rs 32 to close Friday's session at Rs 9,323 per 10 grams compared with the previous day's Rs 9,291 per 10 grams.

"Demand has dropped despite the festival season in India, the largest gold consumer in the world. There is no physical buying, but the scrap gold market has recovered and is currently at a high level," said Prithviraj Kothari, director, Riddhi Siddhi Bullion.

Kothari, however, remained bullish till the price touched Rs 9,500 per 10 grams, adding that the price would only correct thereafter.

Fundamentals were strong for the domestic gold market and the demand was likely to pick up from Navaratri, during the second fortnight of October.

The price might decline next week, but they would recover soon, said B N Vaidya of BN Vaidya & Associates.