Rising rupee hits gold

The domestic bullion market opened on a high note on Wednesday morning as the rupee opened weak early in the day. However, the yellow metal, which closed higher than Tuesday's closing price, could not sustain the high level as the currency rose later in the day.

Standard gold opened firm on Wednesday morning at Rs 8,970, recording a rise of Rs 170 from Tuesday's close of Rs 8,800. Following suit, pure gold too surged to Rs 8,995 in the morning session. However, standard and pure gold closed at Rs 8,855 (up Rs 55 from the previous close) and Rs 8,905 (up Rs 55) as the rupee recovered by evening.

The domestic gold prices reflect global tags and the value of the currency is crucial to the yellow metal's prices as the country imports most of its domestic requirement.

A weaker rupee earlier in the day led to a surge in gold prices, with the import of the yellow metal becoming costlier. However, they dipped as the currency rose in the evening, said an analyst.

The rupee opened on Wednesday at Rs 40.82 to a dollar, weaker than the previous day, reacting to the tightening of external commercial borrowings (ECB) norms. However, the currency ended strong at Rs 40.53 to a dollar.

Forex traders are apprehensive over a further weakening of the rupee, while bullion traders, including Prithviraj Kothari of Riddhi Siddhi Bullions, expect the rupee to move up to Rs 41.20 within a few days.

The domestic demand for the yellow metal is currently negligible as the wedding season, the occasion for which Indian consumers buy gold and jewellery in large quantity, is still far away.

Kothari believes gold will recover to the level of Rs 8,850-8,950 in the near future. In London, the yellow metal might move slightly up to $675-678 from the current level of $670 an ounce because of a likely rise in crude oil prices, which are hovering around $71 a barrel, said Kothari. Gold generally moves in tandem with the crude oil prices.

Meanwhile, bullion traders believe that the intraday rupee movement will not have much impact on gold and silver prices. In contrast, Bhargav Vaidya, a bullion analyst, anticipates a decline in prices in the near future.