Gold zooms to Rs 7680, hits 23-yr high at $508

Hectic buying triggered as yen weakened against the dollar

Domestic spot gold (.999 purity) today zoomed by Rs 70 to Rs 7,680 per 10 gm and MCX December futures rose by Rs 253 to Rs 7,770 (per 10 gm). This was in tandem with overseas spot gold touching a new 23-year high in Asian trading at $508.25 an ounce and the rupee at a 15-year low against the US dollar.

The yellow metal witnessed hectic buying in overseas Asian trading following weakening of Japanese yen against the US dollar, with inflation fears helping gold emerge as a safe haven investment, compared with currency, said Hemal Doshi, a precious metals analyst with Refco Commodities. However, "a correction in prices is required, if gold is to keep its upward momentum," added Doshi.

Spot gold rose by $5.11 (about 1 per cent) to $508.25 an ounce, the highest since February 1983. The metal had hit its all-time high of $850 an ounce in January 1980.

According to a Barclays note, the short-term target is "onwards and upwards for gold; key support was untroubled and gold remains on course to test higher levels still with $510 the next target to aim for... gold is in demand and the market is happy paying for it."

"At prevailing high prices, domestic demand is choked. The rise in prices following rising overseas prices is due to speculative fund-buying. However, depreciation of the rupee is choking demand further," said Suresh Hundia, proprietor of Hundia Exports.

Domestic gold prices are rupee-denominated as the country imports 65 per cent of its total gold demand. The rupee's depreciation against the dollar makes gold imports into India expensive. The rupee ended the day at 46.28 per dollar (US), down 0.36 per cent from the previous close. "Further depreciation of the rupee is unlikely," said Doshi.

Industry feels India's gold imports are unlikely to touch the 600 tonne mark this year, as per the estimates of industy-promoted World Gold Council. "It will be somewhere around 550 tonne, if the prices remain over $485 an ounce.

India's imports in the January-November period were about 492 tonne," said Hundia. However, India's gold consumption in 2005 is likely to be in line with WGC estimates, say industry experts.

"Demand is there and, in India's case, it is being met with recycled gold," said a trader with a public sector bank.

Hundia said, "The amount of recycled gold in the market this year will be about 150 tonne, against 90 tonne last year."

Besides, gold is getting support from rising crude oil prices. NYMEX crude futures hit $60 a barrel in early trade today, in anticipation of cold weather in the US.

North-east will boost heating oil demand. NYMEX light crude was up 72 cents at $60.04 a barrel. The contract had last crossed the psychological mark of $60 on November 9.