Gold soars on fresh fund buy

Gold prices today soared in the domestic market on the back of heavy fund buying induced by a combination of firm energy prices and geopolitical tension.

The yellow metal (standard variety) gained 2.76 per cent or Rs 260 to close at Rs 9,710 per 10 gm in Mumbai's Zaveri Bazaar. Pure gold also rose in a similar measure to Rs 9,760 per 10 gm compared with Rs 9,500 per 10 gm.

The bearish sentiment, which dampened the market yesterday, gradually disappeared as a large number of traders, waiting for a price decline, started fresh booking in London in early trade today.

At present, the yellow metal is at $680 levels in London and New York. And most traders are seeing a further upside on rising demand for ETFs (exchange-traded funds). They expect gold to touch $700 an ounce in a month. Besides the ETF rush, the metal has also attracted investors' looking to diversify funds from other commodities, with US equity prices at near record highs "� hardly having any steam to rise further. Domestic traders, however, believe gold, on an average, is quoting at a premium of $20 because of Iran tensions and will plunge very soon.

Earlier, GFMS had lowered its estimates for gold prices to $675 an ounce, from $700 within the first quarter of this financial year. Gold had struck the highest level since May 2006 at $682.25 an ounce on Wednesday night but receded in early Thursday trade to $676.55. Iran on Wednesday vowed to press on with its nuclear programme, ignoring a UN deadline to freeze uranium enrichment or face broader sanctions. However, the country assured it would not develop atomic weapons.

Traders are also worried over the strengthening of dollar against the yen, but more than this, gold was supported by inflationary concerns after yesterday's strong US January CPI (consumer price inflation) figures "� up 0.2 per cent.

According to sources, excluding food and energy costs, the core inflation rate rose 0.3 per cent, driven by medical costs.

Japanese gold futures today surged by the daily ¥60 limit to ¥2 635 a gm, tracking sharp gains in cash gold and reflecting heavy fund flows into other commodities as well. The December 2007 contract on Tocom was at its highest since September 1985, up 2.3 per cent from Wednesday's close of ¥2 575.