Festive demand likely to check gold price drop

Gold prices are seeing a correction owing to the expectations of a hike in interest rate by the United States Federal Reserve and the strengthening of the dollar.

However, increased buying from India on account of festive season is expected to lend support to gold in the coming weeks.

"The correction in gold is short-term and the Indian festive season would help a rally in gold. The price could be somewhere around Rs 10,500 per 10 gms in September", said Suresh Nair, vice-president of Kotak CSL Research.

"Gold purchases in India have already scaled up with the decline in prices. Traders had restricted their buying last six days on account of rising prices. But the fall in prices has induced them to buy," said Suresh Hundia, owner of Hundia Exports and former president of Bombay Bullion Association.

Standard gold closed at Rs 9,500 per 10 gm in Mumbai, a fall of Rs 335 over the previous day. Standard gold has lost above Rs 500 since Monday.

Gold prices had touched a two-month high of $676 an ounce on Monday on account of heightening tension between Israel and Lebanon. However, the strengthening dollar and rising inflation in US has induced a decline in the prices to $625 an ounce.

At the Multi Commodity Exchange, spot and futures gold prices have seen a fall of about Rs 400-600 since Monday. Spot gold price fell from Rs 10,050 per 10 gm on Monday to Rs 9,465. Futures for August and October delivery fell from Rs 9,844 and Rs 9,987 to Rs 9,549 and Rs 9,686 in the same period.

The US data on Producer Price Index has recorded an unexpected growth rate of 0.5 per cent for June and speculation is rife that the Fed may signal a further hike in interest rate. If the rate is hiked further, the dollar would gain and put pressure on gold.