Gold prices are set to head south mainly because of the three factors: an appreciating dollar, dipping crude oil prices and the likely end to oil-led inflation. Investment funds are also invariably shifting towards other asset classes including equity, currency and bonds.
Experts believe the US Federal Reserve would either keep interest rates unchanged or revise them upwards. Therefore, fundamentals continue to weaken in the valuable asset class, said Jayant Manglik, head, commodities, Religare Enterprises.
The price of the yellow metal is expected to slump to $852 an ounce (oz) in London. But it is unlikely to provide any relief to the Indian consumers as the rupee is depreciating against the dollar. Since the peak of below 40, the rupee has depreciated by about 7-8 per cent, while gold has fallen by above 13 per cent.
Gold had reached $1,033.90 on March 17, the highest-ever price, as the euro and crude oil set previous records.
Surprisingly, the domestic demand has hardly witnessed any major impact of the price rise or the fall because of auspicious days and seasonal buying on occasions like weddings and festivals.
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"Although, the downward movement may continue in gold in the future, much would depend upon oil prices," said an analyst of a leading research company.
This week, standard gold slumped by 4.65 per cent to Rs 12,205 per 10 grams, while pure gold nosedived by 4.67 per cent to Rs 12,260 per 10 grams in Mumbai's Zaveri Bazar following global cues. In London, the yellow metal fell by 4.50 per cent to $885.75 an ounce.
Gold futures for August delivery rose by $7.60 to $889.30 an ounce in early Friday trade on the Comex division of the New York Mercantile Exchange.Demand for the precious metal in the domestic market has almost dried up.
According to market sources, retail jewellers are awaiting a fresh downward movement in prices to build up their inventory for ceremonial functions 4 to 5 months ahead.
"Jewellers require at least four months to prepare innovative designs to lure customers in the demand season, beginning from Dussehra and peaking at Diwali. Therefore, they are in no hurry to book gold at the current high price," said a local trader.