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Good for consumers, bad for traders

Dilip Shah

Gold prices in the Indian bullion markets suffered major losses following feeble interest in the third Bank of England gold auction which was conducted early this week.

"A demand resistance by seasonal buyers, after an early rally, prompted profit booking by stockists and local bankers. Global gold prices are touching bottom levels after bids received in the UK auction was lower than expected," said Dinesh Parekh, a leading bullion analyst and director of the Bombay Bullion Association.

The Bank of England (BoE) auctioned 25 tonnes of gold on November 29,1999. However, the auction was oversubscribed by hardly two times against expectations of nine to ten times. BoE received bids for 1,600,000 ounce of gold in the auction against an offer of 80,000 ounces.

Gold prices dropped to $ 284-285 per ounce in the international markets from $ 297-298 (Quoted prior to the auction). "Losses in the global prices has fuelled panic selling in the Indian bullion market," said Mukul Sonawala, President of Bombay Bullion Association.

Prices of gold biscuit (116.50 grams) crashed to Rs 52,700 per piece from the Rs 54,600-Rs 54,650 quoted at the time of UK auction. 24-carat gold fell to Rs 4,500 per 10-gram from Rs 4,650-4,660 while 22- carat gold was down to Rs 4,175-4,180 from Rs 4,310-4,315.

According to Ashok Trivedi, a bullion chartist, " If the prices drops below $ 280 then it will slide to $ 270. If this happens Mukul Sonawala says that "it can result in a panic situation in the Indian markets pushing the price to Rs 50,000 per piece of gold biscuit".

The BoE has planned to cut gold reserves to 300 tonnes from its existing 715 tonnes and use this money to augment foreign currency reserves. The BoE had sold 25 tonnes on July 6,1999 at $ 261.20 per ounce. The second auction on September 21 of the same quantity fetched it $ 255.75 an ounce. Contrary to last week's auction, the September auction was oversubscribed eight times. The BoE is likely to carry yet another auction, the foruth in its series, in January, 2000.

"The disappointing auction bids, a strong trend in Japanese yen against the dollar, and a poor Indian demand has put pressure on the global gold prices," said Dinesh Parekh.

Thanks to a low domestic gold production (6 tonnes per annum), India depends overwhelmingly on imported gold to cater to the demand ( 600 tonnes per annum). Consequently Indian prices are extremely sensitive to global swings.

According to Babubhai Jain, a retail jeweller at Zaveri Bazaar in South Mumbai, the wedding season has not yet boosted the seasonal demand." We may witness some spurt during the next week but starting December 15th the unauspicious period for gold buying sets in. We expect the demand to pick up again from the third week of January," he said.

However, in the neighbourhood, gold demand has picked up in Dubai ahead of Ramadan Festival. A waiver of custom duty on gold jewellery, in view of the forthcoming Dubal Shopping Festival by the Dubai Government is also stimulating demand.

Obviously, there is more to cheer about the yellow metal across the Arabian Sea.

Gold

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