Is gold going the crude way?

BULLION REVIEW/ After peak of $540/ oz, the yellow metal slipped below $500 level

Gold is currently headed for a similar trajectory as crude has been for quite sometime. Months ago, crude prices shot up to the $70 a barrel level but slipped below $55 a barrel on heavy profit booking.

A class of oil traders earned huge profits by buying at lower levels and selling at higher prices. Now, crude is hovering around $60 a barrel. Similarly, gold after touching a peak of $540 an ounce slumped below the $500 an ounce level towards the end of the week. Now, the metal has made a marginal recovery closing at $504.

Standard gold witnessed a similar fate in the domestic bullion market where it declined to Rs 7,450 per 10 gm on Friday after surging to a high of Rs 8,100 on last Monday. Gold 0.999 closed the week at Rs 7,490 after touching a peak of Rs 8,145 last Monday.

Thus, despite having good non-seasonal demand from rural as well as urban India, the yellow metal lost Rs 650 in a single week but registered a gain of Rs 275 compared on one month.

Similarly, gold .999 gained Rs 280 to close at Rs 7,490 on Saturday in one month, while the metal lost Rs 655 in one week owing to profit booking by short-term players.

"Gold prices are nearing stagnation, but a correction is expected anytime," said Bhargav Baid, proprietor, B N Vaidya & Associates. Gold could touch $480 an ounce in the first week of January 2006 as the yen continues to strengthen. The rupee is also becoming stronger gradually making gold weaker in the rupee terms.

Gold prices may fall below the Rs 7,000 per 10 gm level in the next calendar year as miners push for heavy selling. Fresh investment from Japan and Arabian countries will support current levels, but hedging from miners would dampen sentiments, said Baid.

Liquidation still remains a matter of great concern in the gold market, till the plans for new years are finalised by the international players, an analyst said.

"Intra-day volatility was in the fore towards the weekend when gold prices shot up to $540 an ounce and again came down to $493 in the mid-week but recovered towards the end to close at $504. This indicates that the funds are still active, but miners hedging superseded the overall sentiment towards profit booking," said Rajesh Mehta of Rajesh Exports.

In the New Year, gold prices may see an upward movement but only after a new correction. All optimist traders are turning pessimist owing to higher profit booking from the fund managers who wanted to show good profits for the current calendar year.

Demand for jewellery is reasonably good from rural India despite there is nothing like marriage season there at present.

Besides, investors' faith in tangible assets is growing. So, despite having one side movement from $250 an ounce to $540, investors have been pumping funds into gold throughout. And this uptrend would continue but only after a small correction, added Mehta.

Meanwhile, gold bounced back above the $500 an ounce level in Europe on Friday, gaining nearly 3 per cent, as investors seized the advantage of an earlier dip to a two-week low. Prices fell as low as $492.90 an ounce during Asian trading as the yen's rise against the dollar sparked off heavy liquidation in Japan.

While the precious metal could easily fall further under the weight of selling from Japanese investors and potential year-end liquidation, a hectic buying on price declines is still expected.

Gold futures in the San Francisco saw a four-session decline till Friday, falling under $506 an ounce to finish the week with a loss of almost 5 per cent. The February delivery gold closed at $505.90 an ounce on the New York Mercantile Exchange, its lowest level since November 30, down 70 cents for the session and down $24.30, or 4.6 per cent, from the week-ago close. Earlier, prices surged to a peak of $510.50 an ounce.

Spot gold on Multi Commodity Exchange closed Rs 10 lower at Rs 7,480 on Friday, while on NCDEX (February contract) it ended Rs 37 lower at Rs 7,547.