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Buy local, sell global

Dilip Shah

Gold prices in the Indian bullion markets have rallied further during the week but movements in the prices were wide and uneven causing slow down in the volume as major players stayed away for want of stability in the bullion prices, dealers and analysts said on Friday.

In the Bombay bullion market, gold 24 carat went up from Rs 4,630 to Rs 4,900 (three year's high) after touching a low of Rs 4,550 during the week. Prices attracted selling at Rs 4,900 from there it fell to Rs 4,700 gaining Rs 70 per 10 gram over the week. Prices of gold biscuits (116.65 grams) went up from Rs 54,500 to Rs 57,500 after touching a low of Rs 54,000. Prices were last quoted at Rs 56,000 showing a net gain of Rs 1,500 per piece during the week.

"Actually sharp and uneven gains in the global markets has created wide two way fluctuations in the Indian gold prices adding to the volatility, in the market" and the unausspicious" shradh paksh" has led to poor volumes in the bullion market said a dealer.

Gold prices in the global markets have recovered from $299-300 to $339-340 and then fell to $314-315 per ounce. Gold was last quoted at $320-321 "I have not seen such volatility in the gold prices in the last 20-25 years" says Mr Mukul Sonawala, a newly elected president of Bombay Bullion Association.

"However, sharp rise in gold prices in the domestic markets has prompted rise in the local supply (recycled) of gold checking early gains" Mr Mukul Sonawala said. "Now local prices are quoted at a discounts against import cost (replacement rates)" he said.

"Higher import cost and low local prices curtailed fresh overseas arrivals while improved supplies of local recycled gold took the heat out of the market for a while" says Mr Dinesh Parekh, a bullion analyst and director of Bombay Bullion Association.

"Global gold prices are likely to bottom out around $300-310 per ounce and $290 is a rock bottom" Mr Mukul Sonawala said. Domestic gold prices are not likely to fall below Rs 4,200 level for 10 gram of 24 carat gold" he says.

Rs 4,100 is a solid bottom and local gold will attract festival as well as investment demand at these levels. It is the fag end of the inauspicious" shradh paksh" and series of festivals are begning from next week lastin up to Diwali in November.

"Many Indian gold dealers have burnt their fingers short selling the yellow metal while gobal prices raised buoyancy in the market" Mr Dinesh Parekh said. "These dealers have sold gold forward at lower prices and were forced to cover at higher prices" he said.

Many major gold players are facing payment crisis in the gulf countries and the same situation is prevailing in the domestic " One Indian jeweller has absconded from the bullion market of AbuDhabi to avoid payments and many others are facing a grim situation". He further adds "Fresh festival and investment demand for gold may bring back real smile on their faces in the coming days", he said. "Stock prices have already jumped up and now investment buying may switch over from the stock markets to the bullion market" one jeweller said.

Monsoon is satisfactory and Indian farmers are receiving handsome payments for their produce. Higher income and higher savings with these farmers will activate rural demand for gold. Anyway Indian gold market will attract higher demand in the coming days if the prices stabilise. Any fall in the prices will prove short-lived and attract fresh physical buying.

"Good response to auction of gold by Bank of England, cap on the sale of gold by European banks and revaluation of gold reserve by International Monetary Fund (IMF) had prompted a rally in the global gold prices. Plus, brisk short covering had fuelled more buoyancy in the market." Said, Mr Dinesh Parekh.

Dollar value against Indian rupee has gone down to Rs 43.42 from the recent peak of Rs 43.60. " However dollar will bounce back to Rs 44 in a short while looking at the rising oil import bill due to the recent rally in the global crude oil prices. Oil pool deficit has soared to Rs 5,200 crore from Rs 4,700 crore in July 1999.

Rise in the dollar value against the rupee will drag import cost of gold upward and may prompt fresh gains in the local gold price. "Anyway, market undercurent is firm ahead of festival season and amid bullish sentiment in the global market". Mr Mukul Sonawala said. Bank of England will sell fresh 25 tonnes of gold from its bulion reserve in November and until the said sale, gold is likely to remain firm, he added.

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