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Nervousness before BoE auction on Monday

Dilip Shah

Gold prices in Indian bullion markets recovered some of their early losses on the back of brisk physical demand, dealers and analysts said on Friday. 'Diwali demand for Gold was slow due to volatile price movements prior to Diwali but now gold prices have stabilized and we are flooded with increased inquiries at our retail counters. Festival season is over and now gold is attracting fresh demand ahead of wedding season' a leading jeweler said. Wedding season has begun and will last up to summer next year.

Gold 24 carat earlier fell to Rs 4600 per 10 gm from Rs 4620 but later on bounced back to Rs 4650 level. Likewise, Gold 22 carat slid from Rs 4275 to Rs 4265 and than climbed to Rs 4310 per 10 gm. Prices of a Gold biscuit (116.65 gms) initially dropped to Rs 54,000 per piece from Rs 54,200 and than rose to Rs 54500 - 54600 later in the week.

Gold prices in the global markets increased from $ 293-294 per ounce to $ 298-299 per ounce. Gold was last quoted at $ 296-297 per ounce. 'Gold is well supported at $ 290 and it is a rock bottom in the short term trend' said Mr Mukul Sonawala, President of Bombay Bullion Association.

Wide spread raids and enquiries carried out by central bureau investigation (CBI) on customs officials in this month has kept arrivals of smuggled Gold at a low-ebb' one bullion broker said. 'Official import is now picking up against as global prices have stabilised after wide fluctuations recorded in September and October' he said.

Gold import in Ahmedabad has picked up to 6-7 tonnes after dipping to hardly two and half tonnes in October. Ahmedabad accounts for about 40 per cent of Gold imported in India. Other centres are also witnessing higher gold imports in November against October. 'Nervousness is now giving way to optimism but gold import may drop again if Global prices rally' a bullion broker added.

Market participants were keeping sidelines in the world gold market as volumes were down last week ahead of expiry in the over the counter (OTC) options and long holidays in US and Europe for thanks giving festival. Turnover was low as major players are keeping an eye on the third auction of 25 tonnes of Gold by Bank of England scheduled on November 29, 1999.

Bank of England has planned to cut it's gold reserve to 300 tonnes from 715 tonnes to augment foreign currency reserve. The Bank had first auctioned 25 tonnes of gold on July 6, 1999 and the second auction was carried out on September 21, 1999. Now the third auction is round the corner and the under current of the gold market is uneasy ahead of the said auction.

This time on Monday, gold may fall by ten dollars or may spurt by ten dollars as an immediate reaction to the third auction by UK he said. The prices at which auction of Gold would be absorbed by the global buyers will determine the mid term Gold movements.

Bullion speculators are holding major long positions and if response to the auction turns out to be dull, they may jump out of the market next week and may put pressure on the global gold prices said Mr Dinesh Parekh, a leading Bullion analyst and director of Bombay Bullion Association.

At the last UK auction, South Africa's Gold Field (world's fourth largest gold producer) had bought 100,000 ounces of Gold out of the 804,000 ounces offered by Bank of England. 'If Gold miners and producers comeback and take auctioned Gold out of the market, gold prices will rally next week' Mr Dinesh Parekh said.

However, 25 tonnes is equivalent to hardly three percent of the daily turnover in the London bullion market where bulk of gold is traded, but auction will impact gold prices as it carries wide psychological impression' Mr Parekh added. Meanwhile, Dubai gold market has lost it's face as a re-export centre for Gold following gradual deregulation of Gold trade by India. Now, Dubai is now becoming a centre for quality jewelers for some of the lowest and attractive prices in the world. Dubai is going to start compulsory gold 'hallmarking' from December. ' Iran, Iraq and Egypt are becoming gold hungry and demand has kicked up in these countries' World Gold Council said. Gold demand in Middle East and other Moslem nations is likely to rise in late December and early January for Ramadan festival.

'Looking at the long trend, Gold may touch $ 600 mark by year 2010' Economics noble recipient Robert Mundell said. Gold will prove it's importance again in next century and will provide stability in a World of flexible paper currency' he has predicted.

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