India-led demand strengthens gold

India has staged a comeback in the international gold market as a buyer, even as price of the yellow metal is on a rise. At 1800 IST, overseas spot gold traded at $508 an ounce, up $4.20 from the previous close.

Market players suggest that jewellers from India and China were big buyers today. It seems that the huge stocks of gold which India was holding (following no demand amid high prices) is dwindling now.

Demand for gold is rising and India is back in the ring, said a Delhi-based analyst.

This season, physical demand in India has been hit. "Wedding season is on but fresh gold buying is just about 35-40 per cent when compared to last year. People prefer to recycle gold rather than buy at prevailing high prices," said a top Mumbai-based jeweller.

Gold jewelery demand in India amounts to about 80 per cent of total sales. India, the world's largest consumer of gold, imports about two-thirds of its total demand.

India has already imported over 600 tonne of gold in calendar year 2005 and the total consumption of yellow metal (including about 110 tonne of recycled gold) will cross 800 tonne in the same period.

"Steady demand from the physical sector at current levels is a positive indication to the market, ... showing that consumers are still happy to buy at higher levels,'' James Moore, a precious metals analyst with TheBullionDesk.com, said in an e-mailed note. Demand for gold choked in the spot market as prices rose to higher levels.

Led by fund-buying, largely Japanese, the yellow metal neared a 24-year high at $540 an ounce, earlier on Monday. Gold remains vulnerable to funds' liquidation traditionally seen around the end of calender year and thus, a large segment of market players expect spot gold prices to fall below $ 500 an ounce.

"Funds will sell and get out of market at the year-end. Prices will dip as a result below $500 an ounce next week," said Si Kannan, a senior analyst with Sharekhan Commodities.

Analysts feel that if the same happens this year, the upward momentum will lose steam. Domestic market had opened weak in tandem with the overseas prices but gained ground later in the dam following fresh buying.

Domestic spot gold traded at Rs 7,460 per 10 grams, down Rs 50 from its previous close.

Overseas, Asian trading also had witnessed fresh buying but it faltered later. In London trading, however, demand again has picked up. Bullishness in gold is expected in medium-term following inflation fears and rising fuel costs with a cold winter ahead in the west. These support gold's status as a safe haven investment vis-a-vis currency.

Further, the bullish trend is strengthened following a demand-supply mismatch. The mining output is decreasing by about 3,000 tonne per year and experts expect the trend to continue for the next five years.

GOING STRONG

Jewellers from India and China were big buyers today. It seems that the huge stocks of gold which India was holding (following no demand amid high prices) is dwindling now

Wedding season is on but fresh gold buying is just about 35-40 per cent when compared to last year

India has already imported over 600 tonne of gold in 2005 and the total consumption (including about 110 tonne of recycled gold) will cross 800 tonne in the same period