Gold at 17-year high in London, may rise more

INTERNATIONAL REVIEW BULLION

Gold prices have touched record high in London and indicate further rise owing to strong fundamentals.

The prices broke the record of last 17 years. Spot gold in Mumbai surged Rs 120 from Rs 6,470 to Rs 6,590 (99.9) and from Rs 6,435 to Rs 6,555 (99.5) per 10 gm. Silver, however, was not that hot but perked up Rs 35 to Rs 10,770 per kg.

Gold prices were moving on tight rope till Thursday with limited buying supports from Asian as well as European markets. Up to Thursday, the gold prices in spot Mumbai market were hovering around Rs 6,490 with a range bound gain of Rs 20.

The sudden spurt in domestic gold prices is mainly attributed to record volume at the Chicago Board of Trade (CBOT). The CBOT has announced that trading volume in the exchange's 100-ounce full-sized gold futures contract exceeded 5,000 contracts for the first time on Thursday.

Volume hit a record high of 5,511 contracts, surpassing the previous peak of 4,224 set on July 27. In addition, open interest in full-sized gold futures rose to an all-time high of 6,389 contracts, surpassing the prior high of 6,115 contracts set Wednesday.

On Friday, gold futures in New York rallied afresh to close the week with a $10.30 gain, as continued inflation worry coupled with buoyant demand to push the price of the metal to fresh highs for 2005.

A turn higher in the US dollar briefly blunted gold's advance, although only marginally. The greenback's gains stemmed from US data that showed foreign capital inflows rising in July.

Gold for December delivery closed up $4 at $463.30 an ounce on the New York Mercantile Exchange, having earlier risen to as high as $464, its highest level since December 7.

The contract gained 2.3 per cent on the week. In the New York, analysts remain optimistic about gold's upside potential. The new major upside target for gold is set at $475 to $480 an ounce.

Metals often move inversely to the dollar. For the week under review, however, December gold added $10.30, while the New York Board of Trade's dollar index rose from a close of 86.89 last week to a high yesterday of 88.30.

The yellow metal's upward move was pushed to the 17-year high by a combination of high oil prices, increased demand from Asia and a negative outlook on the US economy after Hurricane Katrina. The prospect of economic slowdown and signs of rising inflation drove US investors to the safety of gold last week.

Gold futures on domestic exchanges, too, moved upwards in the same proportion. Gold-Ahmedabad on Multi Commodity Exchange (MCX) gained Rs 120 and closed at Rs 6,580 per 10 gm while silver-Ahmedabad jumped Rs 100 to end the week at Rs 10,600 per kg.

Moving in tandem with domestic as well as international prices, gold international spot on NCDEX gained Rs 142 to close the week at Rs 6,590 per 10 gm. Gold KG Mumbai perked up Rs 99 throughout the week and closed at 6,579 per 10 gm.

A section of players has warned that the current surge in the gold price may tempt Central Banks to start selling as soon as permitted under a five-year agreement. Under the Central Bank Gold Agreement, signed in March 2004, it could start selling as early as September 27.

According to Barclays Capital, gold has surprised friend and foe on every given occasion. For the current situation, the odds seem very much in favour of a new high in short term. All factors are supporting the upward movement but active traders have also been given a few cautionary remarks to avoid any difficult situations.