Is it time to take a Golden chance?

Analysts want investors to do a fact check on gol

Festival season is round the corner, and if you're thinking about upping your glitter quotient, you might as well hold on to your reins for a quick check.

With gold prices racing close to the $500 per troy ounce mark, most analysts are putting in a word of caution before you invest in the yellow metal.

On the New York Mercantile Exchange, the benchmark, Comex gold December futures contract touched a $477.80 peak, before closing at $472.30 on Friday.

This price is indicative of the way gold is moving, and analysts point out that this could either be a third wave rally, which means it has a bit more steam left to go, or a fifth wave rally, which means prices have to take a correction from here.

According to Krishna Nathani, head, research, Indiabullion.Com, if it is a third wave rally, then gold is likely to initially correct to the $460 levels, before rising to the $480-490 levels. If it is a fifth wave rally, the prices are expected to move downward to the $440 levels.

"The market for gold is overheated, with the extreme bullishness in gold having sustained the rally. Therefore, investors should wait before they ake the plunge," he said.

Further, he suggested that for the bullishness to sustain in the long term, a correction has to take place, and prices are likely to pick up only from March onwards after the first quarter of 2006.

"The $430 levels would be a good bet to purchase gold. These levels are not imminent in the immediate future," he said.

Another view offers that the market is looking at a sudden slide, as the the long positions on the Comex are over 2,00,000 - that is at record levels - indicating high speculative activity. At these high levels, if hedge funds begin to book profits, the decline is expected to be rapid.

Besides, though the euro has been rapidly losing ground against the dollar in the past month - falling from the 1.25 to the 1.195 levels - gold buying has been strong. This is against the usual inverse trend, indicating that gold is not currently seen as a hedge against inflation.

"Long-term investors should look at short-term trades of two weeks to a month, if they would like to make some money in the markets," Nathani said.

Bullion consultant, Bhargava Vaidya also reiterates that while situation could improve over the next six months, the current physical demand is sluggish by 4-5 per cent, despite the festival season, with the prices higher by over 10 per cent.

"The delay can be attributed to the late monsoon, which has subsequently led to a late harvest. The demand will pick up in the next three weeks, post-November, when the prices are also expected to be lower," Vaidya said.

Bars and coins are considered a better investment option in comparison to jewellery, as demand for fabrication has also plateaued.