Hedge funds to further fuel bullion rally

Overseas bullion prices are all set to post massive gains backed by heavy hedge fund buying. Indian prices too are likely to rise tracking them.

However, physical demand has been severely dented by these high prices. Traders do not see the situation easing, in spite of the onset of the marriage season.

Traders said the target for overseas gold prices is $600 an ounce and silver is $12 an ounce.

Most traders agreed that the current scenario is highly favourable for the precious metals complex and the targets set will be comfortably achieved.

"We are absolutely bullish on precious metals," said Jinesh Sanghvi, India Infoline. "The target of $600 could be attained in a couple of weeks," he said.

Sanghvi also said that in domestic markets prices of gold could test Rs 10,000 per 10 gm before Diwali, while silver may hit Rs 20,000 a kg.

Overseas gold prices rose by 20 per cent last week. Similarly, silver posted massive gains, rising almost 14 per cent.

Domestic markets too, showed great strength last week. Pure and standard gold (in Mumbai) rose by 3.7 per cent.

On Friday, pure gold (in Mumbai) peaked to a lifetime high of Rs 8,560 per 10 gm. Standard gold was at Rs 8,520. Silver traded at its lifetime high of Rs 17,370 a kg on the same day.

Amongst gold and silver, the white metal was the star performer with prices rising almost by 10 per cent last week.

"It is basically the commodity bull run which is simply urging the funds to pour in their money into the precious metal complex," said a Mumbai-based trader.

"There is so much excess liquidity overseas that people are finding alternative route for investments," said a Mumbai-based analyst.

"They are hence transferring their money to gold and other precious metals," he said. Traders said hedge funds are attracted to precious metals largely because they offer higher rates of return compared with other forms of investment "� such as currency or bonds.

Dealers also attributed the rise in prices to soaring energy costs, a host of geo-political tensions, and a fluctuating dollar. Precious metals normally have a direct correlation with crude oil prices, as any rise in energy prices urges traders to eye the complex for 'safe haven' buying.