Yellow metal tumbles Rs 200 on global fall, low local demand

Under the continuous pressure of the international price decline and a lower domestic demand, standard gold today tumbled by Rs 200 again at Jhaveri Bazar in Mumbai to close at Rs 9,580 per 10 gm, thereby recording the fifth straight decline.

After touching the all-time high at Rs 10,665 per 10 gm on May 12, standard gold started falling on profit booking by large fund and institutional investors.

The yellow metal declined by Rs 920 in the last five days, indicating the end of a sustained rally in the domestic market.

However, the domestic price of gold was pushed a little up at the opening of trade in New York, which saw gold recovering in early trade by $10 to cross the psychological barrier of $650 an ounce. The most volatile precious metal touched the day's high of $651 in the first hour of trade in New York.

"The volatility would continue, but gold may not cross the Rs 10,000 mark in the domestic market as well as the $675 level in the international market," said a Mumbai-based analyst Bhargav Vaidya.

"The gold price would largely depend on the behaviour of the rupee. Today, despite India being the largest consumer of gold, with 750 tonne, the gold prices are determined by the movement in the international market," Vaidya added.

With a turnover of Rs 2,757.98 crore, June 2006 gold on Multi Commodity Exchange of India (MCX) closed at Rs 9,607 per 10 gm, down by Rs 205 or 2.13 per cent.

Again, while August 2006 gold settled at Rs 9,762, a loss of Rs 242 or 2.48 per cent, October 2006 gold ended at Rs 10,028, depreciating by 2.29 per cent or Rs 230.

Any movement beyond the immediate $632-640 an ounce range leaves the precious metal vulnerable to 'outside influences' such as the dollar strength and a sudden change in investor sentiment. Possible catalysts include US economic data due this week, including May consumer confidence figures that may lead to the metal's real direction.

According to HSBC sources, the correction in gold prices witnessed last week suggests a deterioration in those factors that once supported gold, such as investor's appetite for risk, inflation concerns and supply constraints.

Several of the factors that propelled the metal to scale new highs are changing in a measure sufficient to put pressures on it to go sliding down, a trader said.

Anticipating the deteriorating demand in India, the trader said without a strong underlying physical fabrication demand growth, precious metals would struggle to sustain the current price levels.

The market sentiment is very fragile, so further weakness in the yellow metal's price in the coming sessions cannot be ruled out, another trader said.