Precious metals shine on weak currency, global tension

Weaker currency, coupled with geopolitical concerns, lifted spot gold prices up by 2.5 per cent last week in Zaveri Bazar, Mumbai, with standard gold closing at Rs 9,240 per 10 gm and pure gold closing at Rs 9,290 per 10 gm.

The yellow metal witnessed a similar gain in the Delhi spot market, where standard gold surged to Rs 9,400 per 10 gram at the end of the week as compared with Rs 9,170 per 10 gram last Monday.

Traders are divided over the futures prices of the yellow metal. A section of the traders opines that the prices would decline in the near term, owing to year-end blues for giant investment companies, as they will shun fresh investments to show healthy profits this year.

They may square off their positions by selling their reserves at a higher price. However, another section believes that these companies will rebuild their positions by booking fresh orders to complete the investment obligation for the year.

The pessimistic view takes the price to decline up to Rs 9,000 per 10 gram in the immediate futures contracts, as early as next month.

"Before the Chinese funds flow into the market, the gold prices may take a downward turn early next month," said Prithviraj Kothari, director, Riddhi Siddhi Bullion, and member of the Bombay Bullion Association.

China has proposed to invest $100 billion in currency and emerging markets. A conservative estimate of at least 5 per cent of the Chinese investment in precious metals will take care of a big demand for gold in the entire year.

"The country does not have enough options and, therefore, gold could be one of the very few instruments," Kothari added.

In the international market, gold prices could decline up to $600 from $632 at present before fresh investment creeps into the metal to touch a new peak by the first quarter of the next calendar year.

The optimists cite weaker currency, Iraq war and the falling US economy as driving forces behind the prices to go up.

In the futures market, the yellow metal gained 2.29 per cent on the MCX last week, with gold for Ahmedabad delivery for the near-month contract closing at Rs 9,272 per 10 gram.

The recently launched gold mini contract has peaked up within a short span with a price gain of about 1 per cent to close the week at Rs 9,220. The existing gold futures for the near-month delivery gained 1.88 per cent to close at Rs 9,265 on Friday from Rs 9,094.55 per 10 gram last Friday.

Moving in tandem, silver .999 gained marginally by 1 per cent to close at Rs 19,485 a kg on Friday as against Rs 19,290 a kg last Friday. Silver for Delhi delivery closed the week with a gain of 1.73 per cent at Rs 19,281.25 a kg on Friday.

Sheel Chand Jain, president, All India Sarraf Association, the representative body of state-level jewellery associations, believes there is no possibility of gold prices shedding, with the prices slated to go one way up. The price is set to touch Rs 9,600 per 10 gram next fortnight.

He further added that China is jumping into the gold and diamond jewellery market in a big way, with Indian jewellers set to face the heat in the exports market in the years ahead.

"The trade sentiment has changed dramatically from jewellery to coins and the demand for gold coins has shot up by 25 per cent this year. The precious metals would remain firm in future as well," he added.

On the geopolitical front, the trade took note of worsening conditions in Iraq after the bloodiest bomb attack that killed 202 in a Shi'ite area.

Apart from that, the market could well explode to even higher ground after the Thanksgiving break, when many major players return to the market on Monday, when business resumes after a shorter weekend owing to the Thanksgiving holiday on Thursday and Friday.