Weak Re adds lustre to gold

Spot prices in the domestic gold market closed firm on Thursday as the rupee ended weak. Standard gold closed at Rs 8,895 per 10 grams, up Rs 50 over Tuesday's close of Rs 8,845.

The rupee, which opened weak at Rs 41.01 to a dollar on Thursday morning, further declined and ended the day at Rs 41.37 against the dollar.

The global equity markets meltdown led to a decline in the rupee following a slowdown in the dollar inflows.

A weaker rupee raises the price of the yellow metal as most of the domestic gold requirement is imported.

In the early trade on the Multi Commodity Exchange (MCX) on Thursday, gold for October delivery slumped by Rs 11 to Rs 8,887 per 10 grams.

The December contract too lost Rs 7 to Rs 9,010 per 10 grams following a rout in the global equity markets.

However, the precious metal gained later in the day, with the October and December contracts closing higher at Rs 8,902 and Rs 9,026 per 10 grams respectively.

The domestic gold market would remain bearish in the wake of global economic turmoil and absence of local demand, said an analyst.

"A decline of at least Rs 250-300 per 10 grams cannot be ruled out following a possible slump in the international markets in the days ahead," said Bhargav Vaidya of BN Vaidya & Associates.

However, the seasonal demand for gold in India, which is likely to resume in September, coinciding with major festivals and the marriage season, is set to support the domestic bullion market. By then, gold prices, especially in the domestic market, would continue to take cues from the international markets, irrespective of the rupee appreciation or depreciation, the analyst added.

"The rupee is likely to recede further to the 42 level. But it is not likely to impact domestic gold prices in a big way. Even if the currency touches the level, the yellow metal would range between Rs 8,900 and Rs 9,000 per 10 grams," said Prithviraj Kothari, director, Riddhi Siddhiss Bullion.

The rising US dollar against a basket of currencies, including the euro and the pound, has put pressure on the bullion as gold prices generally move in the opposite direction to the US currency. The dollar gained against the euro on Thursday for the fourth day in succession.

A transition in the gold market from a steady to a volatile and unpredictable investment option is now questioning the status of gold as a safe haven for investors.

Gold for December delivery lost 10 cents to close at $679.70 an ounce on Wednesday on the New York Mercantile Exchange. The metal dropped to a low of $672.50 in the morning and rallied back in spite of pressure on investors to liquidate to reduce losses elsewhere.

On Thursday, gold slumped to $664.9 in London in the early morning trade, a decline of about $5 from Wednesday, which was mainly attributed to the strength in the dollar.