Gold scales new peak

No imports this month; jewellery demand comes to a standstill.

Gold prices zoomed to a record high on Tuesday as global investors turned to the yellow metal on fears over global economy and inflation. A slump in the equities market across the globe also aided the rise of the precious metal, which closed at Rs 15,295 for 10 gm in Mumbai, as investors looked to gold as an alternative investment.
Even 22-carat ornament gold closed above Rs 15,000 at Rs 15,230 for 10 gm. On Tuesday, gold gained Rs 475 even as it rallied to a seven-month high in the global market to around $960 an ounce.

Main triggers

There were two main triggers for the gold’s rise in the global market. The first was a report from Moody’s saying banks in western Europe were exposed to the rapid economic decline in eastern Europe. The second was Russia’s announcement that gold share in its foreign exchange reserve had increased and it would continue to buy more gold.
“The economic situation is bad and markets around us are crashing. In this situation, the only option for investors is gold and silver,” said Mr Suresh Hundia, President of the Bombay Bullion Association.
In India, the weakening rupee is primarily driving the yellow metal up. The rupee fell to a two-month low of 49.70 against the dollar on Tuesday.
Gold, which had zoomed to its highest in sterling pound last week, hit a new high in terms of Australian and Canadian dollar besides South African rand. Trade deficit, besides weakening currencies, has been driving the dollar high. Since the beginning of the year, the rupee has been hovering below 48.50 to the dollar.
“The declining rupee has forced the yellow metal to move higher and has taken it beyond common man’s reach,” Mr Hundia said.
Reflecting the higher prices, imports have come to a standstill this month. “No import of gold has taken place this month in view of the soaring prices. Last month, too, imports were a meagre 1.8 tonnes,” he said.
On the other hand, banks too have run out of stock of gold bars. “Banks don’t have any gold bars with them,” said Mr Hundia.
This, in turn, is helping some investors who had bought bars to sell to jewellers at the current market price. “I sold a 20 gm and 50 gm bar at the market price last week to a jeweller,” said a Chennai-based investor.
Demand for gold jewellery is also witnessing a slump. “There is no demand for gold jewellery at all. This is the peak marriage season, but we are not seeing any buying,” Mr Hundia said.
“There is just one customer in our section which sells chains. Otherwise, we have no one in our showroom,” said an in-charge of an outlet in T. Nagar, a busy jewellery hub in Chennai.
“People are recyling their old jewellery to meet the demand for the wedding season. There are some who are coming forward to sell their gold jewellery at a discount of Rs 3,000/10 gm,” said Mr Hundia.

Different trend

Usually, the global market takes cues from Indian demand for gold. But that seems to be a thing of the past. Not surprising, because the daily average trading in gold increased eight per cent to 18.8 million ounces in January.
Hedge fund managers increased their long positions in gold by five per cent last week, while the holding of the yellow metal by SPDR Gold Ttrust, the largest exchange-traded fund backed by bullion, increased 14 per cent last month to 985.86 tonnes – a record. Holdings by ETF Securities Ltd’s gold exchange-traded fund increased by seven million ounces last week.
A majority of analysts see gold hitting $1,000 soon and $2,300 in the long-term, given the weak global economy.