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Gold meltdown may not spur consumption

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Dilip Kumar Jha Mumbai
Last Updated : Feb 14 2013 | 10:52 PM IST
Yellow metal below Rs 9000 mark.
 
Domestic gold consumption, which dwindled about 90 per cent in the recent past owing to spiralling of prices, is not going to pick up in the near future on account of high volatility in the domestic as well as international markets, feel analysts.
 
Gold prices on Tuesday slumped by about $15 an ounce in London and Rs 200 in India, settling below the psychological barrier of Rs 9,000 per 10 gm, at Rs 8,812 in the mid-session of trade.
 
The yellow metal has witnessed a sharp decline of about Rs 800 in the last eight to 10 days and Rs 2,500 per 10 gm from the peak.
 
According to a section of domestic analysts, total volume of gold consumption, including recycling, in India is estimated at around 1,000 tonne, while data from the World Gold Council pegs it at 721.6 tonne in 2005.
 
Despite the short-term southward trend in gold, uncertainty prevails owing to high volatility in the domestic as well as international markets. This trend is not boosting traders' interest much. So, trade volume is likely to remain thin for some time, an analyst said.
 
"Gold consumption will not see a stimulative change so soon since it is not the season now," said Prithviraj Kothari, director of Riddhi Siddhi Bullion and member of Mumbai Bullion Association.
 
Not only the commodities markets, but equity markets, too, are going southward because of renewed confidence in the US Treasury Funds (USTF).
 
Funds are being diverted from every possible corners to the USTF and, therefore, only the USTF is strengthening on Tuesday, said Kothari.
 
Gold investors are shaken with the strengthening of the dollar against the yen and the euro, coupled with the selling pressure from Japan and the European Union traders.
 
Kothari believes that gold prices will further decline up to $575 an ounce in London and Rs 8,500 per 10 gm in the domestic markets, before they take a "U" turn to rekindle consumers' confidence.
 
But showing some confidence in the short-term gold trade, Bhargav Vaidya of Vaidya & Associates said gold prices might shoot up to $620 an ounce as early as next month.
 
Investors remained keen on selling the metal on weaker oil prices and a firm dollar, but they were careful about pushing it below a key technical support level of $590.
 
Gold was confined to tight range-trading amid the absence of new market-driving factors, with Japanese futures prices also being under pressure since investors reduced their buy positions after a recent sell-off.
 
The precious metal is passing through a major correction. But, the trend is still bullish towards the end of the year, which may see the prices up at Rs 10,000 per 10 gm again, Kothari added.
 
"The clear trend will be seen after the Federal Market Committee meeting on June 20. There is a probability of a hike in interest rates. Markets are responsive to the treatment of inflation by the Federal Reserve," said Suresh Nair, VP, Kotak Commodity Services.

 
 

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First Published: Jun 14 2006 | 12:00 AM IST

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