Jewellers may spur gold prices

MARKET OUTLOOK

Despite gold hitting a one-week high in London and New York, analysts anticipate an imminent correction in the near term mainly on currency appreciation in the developing countries.

According to a precious metals analyst, gold in London may decline to $646 an ounce within a fortnight, but the domestic market would remain unaffected because of the high off-season demand by jewellery makers. The yellow metal, however, is likely to slide further in the medium term.

"All the time consumers drive the domestic demand, but this time jewellery producers are booking afresh in both the spot and futures markets for new collections ahead of the India International Jewellery Show 2007 (IIJS 2007) scheduled next month," the analyst said.

Besides, analysts anticipate that high crude oil prices may offer little opportunity to hedge funds for fresh investments, thereby providing a wider room for investment in the yellow metal. West Texas Intermediate (WTI) crude oil hit a record $78.77 a barrel on Wednesday, but profit-taking rapidly set in and prices fell subsequently.

Nymex September West Texas Intermediate retreated $1.08 to $75.78 on Friday, down 1.6 per cent from the last week's close. ICE September Brent lost 75 cents to $75.01 a barrel on Friday, down 1.7 per cent.

Speculators had built record levels of bets on price appreciation, but they took advantage of WTI's surge to book profits. But some analysts say prices will remain underpinned.

Last week, gold touched a weekly high at $670.50 in London on a fresh diversion of hedge funds from base metals and on speculation that a slowing US economy may keep the Federal Reserve from raising interest rates, weakening the dollar and boosting the appeal of precious metals as an alternative investment.

On the Comex division of the Nymex, gold futures for December delivery rose 1.2 per cent or $7.80 to $684.40 an ounce, recording a weekly gain of 1.8 per cent.

Meanwhile, the dollar fell against the euro after a government report showed that the US economy had added fewer jobs than expected last month. The euro has climbed 4.5 per cent against the dollar this year and reached a record $1.3852 on July 24. The dollar also further weakened against the rupee to close the week at Rs 40.33.

On the MCX, gold for the near-month contract was trading at Rs 8,864 per 10 gram, while in the spot market standard and pure gold were quoting at Rs 8,735 and Rs 8,780 respectively, a marginal gain of Rs 15 each.

Meanwhile, Prithviraj Kothari, director, Riddhi Siddhi Bullion, feels the seasonal demand is gradually picking up and may take gold prices to Rs 9,300-9,500 by Diwali.