Gold rises to 2-month high

Despite the disparity between international and domestic movement, gold prices in the domestic market touched a two-month high on Friday owning to firm guidance from London and China.

Spot standard gold closed at Rs 9191 per 10 grams on November 10, a rise of Rs 586 or 7 per cent, from October 10. Pure gold, too, gained similarly to close on Friday at Rs 9242 per 10 gram.

On Friday, the disparity of price amounts to $3 per ounce between India and London. In London, gold price perked up about 12 per cent to touch $636 an ounce compared with $577 an ounce on October 10.

The governor of the China Central Bank, Zhou Xiaochuan, said the country was considering many instruments to diversify its $1 trillion in forex reserves.

Although he did not specify instruments the country was looking at, still analysts consider gold as one of the various options. As the 10th largest holder of gold, the country holds approximately 600 tonne of gold in its reserves.

Analysts are divided on the reasons for this disparity. "One must look at currency prices before comparing the price," an analyst said.

On September 9 when gold in the international market was moving around $635, it was quoted at Rs 9,700 per 10 gram because of higher convertibility rupee rate of 46.44 against dollar. On Friday, gold price in London touched the same highs but in India it was in the range of Rs 9,200 per 10 gm.

This is purely because of a lower rupee (at 44.45) against the dollar, said an analyst. In Ahmedabad bullion market, standard gold closed at Rs 9,178 per 10 gram. The story is different according to Prithviraj Kothari, director, Riddhi Siddhi Bullion and member, Bombay Bullion Association.

"Speculative buying driven by news that China plans to diversify its forex reserves towards precious metals and emerging economy. A weaker dollar also helped boost prices," he said.

Apparently, the lack of demand owing to falling local demand forced price to move in close range. "There is no festival ahead in which people buy gold in the domestic market. As a general trend, this is the depressed season going on especially for gold in which consumers abstain from fresh buying soon after Diwali," he added.

Kothari seems cautious about the prices movement in future by saying that if the current trend continues in the international market the domestic price would go upto Rs 9450 per 10 gram probably by early next week. But, in case of decline the yellow metal would subdued to Rs 9150 per 10 gram in Mumbai.

Bhargav Vaidya of B N Vaidya & Associate, however, is adamant on gold price to remain below $640 an ounce.

According to Kotak CSL Research, "Prices in the Indian markets would move into a discount as rupee appreciates against the dollar. Thus, gold would become expensive in rupees compared with gold in dollar terms in the days ahead".