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After Sensex, gold may touch 5,000 mark

Dilip Shah

Gold prices in the Indian bullion markets have rallied further during the week riding on tight overseas supplies and physical buying ahead of the festival season, according to dealers and analysts.

In Mumbai, 24-carat gold went up from Rs 4,700-4,705 to Rs 4,905-4910 per 10 grams heading towards the Rs 5,000 mark. Prices of gold biscuits (116.65 grams) sprinted by Rs 1,800 to touch Rs 5,780 per piece during the week.

The festival season in India has already commenced and will last up to Diwali (festival of lights) in November. "Demand for gold may extend beyond November due to the beginning of the marriage season," said a leading jeweller in South Bombay.

Gold prices in the global markets hovered between $315 and $ 325 per ounce as dips were attracting short coverings while producers selling capped gains.

"Overseas supplies were slow in the Bombay and other Indian bullion markets," one broker said adding that local prices are still quoted at a discount against import cost. However, discounts fell to Rs 1,000 per piece of gold biscuit against a recent high of Rs 2,000 to 3,000 amidst drop in the local supplies of recycled gold in the Indian markets.

Official gold import had climbed to 62 tonnes in August due to low international prices according to the World Gold Council. But now imports are under pressure. "Official imports have fallen to 30-35 tonnes in September," remarked Dinesh Parekh, leading bullion analyst and director of Bombay Bullion Association.

Global gold was down to a 20-year bottom of $250-$255 per an ounce in July and August but later on prices rallied to $335-$340 which was the peak of last two years of trading. 15 European Central Banks pledged last month to limit their gold sale from reserve. This group accounts for about 50 per cent of all official gold holdings. These banks have also decided to limit lending and derivatives activities in gold for the next five years and said the move has prompted record rally in the global market.

Global gold prices are moving in a tight range but any break above $325 will activate fresh rally. 'A fresh rally will push the price to $370-$375 per an ounce,according to BBA's Parikh.

Low deliveries of Russian platinum in the global market had also kept the prices firm. The US, IMF, Bank of Japan and the Reserve Bank of Australia had decided not to sell gold while bullion brokers reported demand for gold from Holland, Philippines and Russia. In the global market, activity was led by arbitragers and brokerage firms while investors stayed away for want of bargain hunting opportunities.

The World Gold Council has estimated a gold demand of 850 tonnes in the current year in India. Last year the demand was for 815 tonnes. Global gold production is 2,500 tonnes per annum and consumption is 3,300 tonnes. Disinvestment, lending and recycling of scrap gold bridges the gap between demand and supply. Any imbalance in this system leads to volatility in the gold prices across the world.

Gold lease rates are higher which indicates shortage of the yellow metal while short position (forward sales) have risen to 6,000 tonnes. "Any dip in the gold prices wild attract short coverings," said a leading jewel exporter. The response to the Indian-made designs is warm in the international market and recently one Indian company exported 20 kilos of gold jewellery.

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