Gold touches Rs 7880 as gobal rally continues

As gold continued its gallop to unchartered territories, standard gold scaled a new closing high of Rs 7,880 per 10 gram today, gaining Rs 105 over the previous close.

Bulls raged throughout the day as the yellow metal was supported by investment funds and the positive fundametals in the international market.

"Domestic prices are getting support only from the international market. Activities in the local gold market has declined drastically by about 90 per cent," said Prithviraj Kothari, director, Riddhi Siddhi Bullion, and member, Mumbai Bullion Association.

"The price is expected to touch Rs 8,000-Rs 8,200. Once the decline starts, the lower range would be between Rs 7,500 and Rs 7,700," estimated Kothari.

The international rally sprung from the gold buying spree of the Japanese government, treasurers and funds. They have bought about 125 tonne of gold in the last 15 days and they are set to buy another 125 tonne (open interest is 125 tonne). Therefore, as long as the Japanese investors are active, gold prices are not expected to ease, say experts.

The Japanese yen weakened further on Friday by about 2 yens against the dollar which is expected to strengthen their economy. However, interest rate is zero for the investor. Therefore, everybody has diverted their funds to buy gold as the metal is considered a safe haven.

Another reason for the spectacular rise in prices is that gold demand is seen surpassing the mine supply. Miners are not very keen on developing new sites since production costs have sharply risen.

Mining cost has surged from $280-380 to $523-524 in the international market and therefore, producers would not be interested in continuing their activities if they are not priced better. This may push up gold prices further, said an analyst.

This year spot gold prices have risen nearly 20 per cent on heavy buying by funds who have been diversifying their portfolios into commodities for better returns and on fears of inflation and economic growth.

The trend is expected to continue in 2006 too and $850 an ounce is not an impossible level in 12-18 months, say analysts. Physical markets have also been supporting the price rise, a trader said. The physical demand is expected to rise to 3,957 tonne in 2005 from 3,840 tonne in the previous year. Mine production is expected to see a marginal increase to 2,495 tonne from 2,461 tonne.

Rajesh Mehta of Rajesh Exports said, "Gold price may see fresh historic highs in the next 15-20 months if a correction is not happening. Looking at the movement, a correction looks due which may come any time in the next two-three days."