Gold prices up 2% in two days

A weakening dollar, hedge fund buying and an anticipated recession in the US, have lifted gold prices by more than 2 per cent in the last two trading sessions. It has recorded a gain of Rs 165 till today.

The yellow metal gained Rs 170 last week and recorded a rise of Rs 565, starting from December 1. It took a surprise upsurge by $9 in the beginning and $5.56 towards end of trading session on Friday ahead of a curtailed weekend, leaving bears in the lurch.

Standard gold (99.5) closed the week at Rs 7985 and 99.9 at Rs 8,025 per 10 gm. The most preferred heaven for investment, today, sparkled on Monday to cross the psychological barrier of $555 and flirted around $557 late afternoon in the international market.

"The recently released data by the US indicate that the economy is advancing towards recession. Apart from that interest rate have bounced back to 5 per cent now from 1 per cent while borrowing a few months ago," said Rajesh Mehta of Rajesh Exports, the largest exporter of gold jewellery.

India being the largest consumer of gold of about 850 tonne, of which 100-150 tonne might be coming from scrap, the wedding season does have some bearing on international gold prices.

Gold demand in India rises 50 per cent during wedding season, but this year demand is expected to remain slightly low because of rising prices, added Mehta.

"Gold market is in short supply and therefore, prices are perking up," said Harmesh Arora, head NIBR Bullion and vice president Mumbai Bullion Association.

Fresh buying from the countries like Japan, Korea and China has increased demand but supply remains static. Gold is considered as a safe heaven for investment from all corners of the world and therefore, prices in the domestic market depend on the movement in the international market.

"Although the yellow metal has already started picking up it requires fresh boost. Once, it starts nobody can stop it to cross the psychological barrier of Rs 10,000 per 10 gms in the domestic market very soon. In its normal course, gold may see this landmark in the next six months," Arora added.

This week would be crucial when traders are coming back to the market after Martin Luther King day on Monday, they may give direction to gold prices. Thereafter, domestic market would take the direction accordingly, an analyst said.

In New York, February delivery gold rose as high as $558 an ounce before edging to $557.10 - still up $7.8 (1.4 per cent) - the highest mark since January 1981.

Gold rallied as investors who are bullish on the market for 2006 increased their stakes before an early close on Friday and a market holiday on Monday.

Money managers and investors have increased their exposure to gold and commodities as they diversify away from currencies, equities and bonds in hopes of boosting returns. Concerns about the economy, geopolitics and a weaker dollar in 2006 also have attracted investors to the precious metal.

Gold is forecast to average $618 a troy ounce in 2006 - with a high of $760 an ounce, and a low of $520.75, experts said.

Global demand for gold is likely to keep growing as the economies of India and China continue expanding and their people have more income with which to buy the metal.

Meanwhile, the announced Chinese currency diversion is anticipated to move towards gold which may and may not happen as China has pulled back from such announcements in the past, a trader said.

If that happens really then the yellow metal can see its all time high level very soon. Gold futures for February remained steady on Friday at Rs 7875 as compared to Rs 7878 on Thursday. Volume remained thin ahead of Makar Sankranti in the country. That on NCDEX closed lower at Rs 7,886 compared with Rs 7,902 the previous day.