Profit booking may take sheen off yellow metal

MARKET OUTLOOK

The bullish trend in gold prices is likely to end due to lower Chinese demand and possible profit-taking by physical players including jewellers and speculators.

Traders believe the yellow metal has already touched the psychological barrier based on current fundamentals, and the metal has only the downward direction to go.

On Friday, gold prices in London touched the psychological barrier of $670 in early trade and declined immediately to $662.80 following profit booking at higher levels by traders ahead of Chinese New Year holiday scheduled on February 18.

Gold prices would touch the $670 level by early next week, and thereafter it would go southward, said Bhargav Vaidya of B N Vaidya & Associates.

On Friday, standard and pure gold in Mumbai touched the five month highs of Rs 9430 per 10 gram and Rs 9480 per 10 gram respectively. Both the category ended the day with a gain of Rs 110 per 10 gram.

Attributing the price surge as an impact of international trend, Vaidya said the bullishness was purely speculative in nature as players wanted to take the prices up to the $670 level, at which they could book profits. On the extent of the fall, Vaidya said that the yellow metal may decline $40 on profit booking next week.

However, S K Jain, president, Chandani Chowk Jewellers' Association and member of All-India Sarafa Association, felt the price would consistently go up irrespective of psychological barriers. Though he agreed there was lacklustre demand from retail jewellers, he said fragmented and occasional buying would continue to push the prices up.

"Demand for retail gold in the country is gradually losing to diamond as the middle class gold consumers are switching over to diamond," said Jain.

The most-active April gold on the COMEX division of the New York Mercantile Exchange was up by 1.1 per cent or $7.20 at $670 an ounce, its loftiest level since August 10, last year.

This was the fifth consecutive weekly gain after dropping 4.9 per cent in the first week of the year. The metal is up 4.2 per cent this year, outperforming commodities such as oil and copper.

A lot of new funds are being infused into gold because of the only option for converting this investment into a cash anytime anywhere, an analyst said and added that he anticipates a run to $700 before the metal gets any significant degree of profit-taking.'