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Gold hits four-week high on rebound in festive demand

Source : BUSINESS_STANDARD
Last Updated: Sat, Jan 18, 2014 18:49 hrs
A saleswoman arranges gold jewellery inside a showroom in Kolkata

After four weeks of volatility, spot gold prices surpassed the psychological barrier of Rs 30,000/10g on Saturday, amid rising festive demand. Tracing the rise, silver hit an eight-week high, due to expectations of a recovery in industrial production, in line with a rebound in other economies.

Standard gold rose one per cent to close at Rs 30,050/10g on Saturday. After two months of sustained pressure on prices, silver closed at Rs 46,025 a kg here, a gain of 1.6 per cent.

Kumar Jain, a city-based bullion dealer, attributed the rise in prices to the Income Tax Department's recent guideline that mandated large dealers to keep sale and purchase statistics in order for inspection; dealers with a monthly turnover of more than Rs 5 lakh will have to maintain accounts in order.



"This has posed a threat to bullion dealers to purchase gold only through the official channel. It has reduced smuggling of gold in the market, resulting in a further squeeze in supply. Also, rising prices in the international market have had a cascading affect on the domestic front," said Jain, director of Umedmal Tilokchand Zaveri and vice-president of Mumbai Jewellers' Association.

Amid high volatility, gold has seen a rise of 3.14 per cent so far this month, following a global rally. In London, gold surged 4.43 per cent-from $1,200/oz on January 1 to $1,254/oz on Friday; silver surged 4.62 per cent to close at $20.31 an oz, against $19.41/oz on January 1.

"The trend is likely to continue, albeit for a short period," said Gnanasekar Thiagarajan, director, Commtrendz Research, a commodity broking firm. He added bullion prices had received technical support. As fundamentals continued to remain bearish, the technical upsurge wouldn't be enough to sustain the rally for long, he said.

The rising trend in bullion wasn't supported by the rupee. So far this month, the rupee has appreciated 0.57 per cent. On Friday, it closed at 61.55 against the dollar.

With a recovery expected in global economies, industrial activity is set to rebound. As such, the demand and prices of silver are set to rise. "By and large, silver will follow gold. A fall, if any, will be limited. The rise, however, will speed past gold," said Thiagarajan.

Currently, festive buying is underway. Physical buyers, however, remained absent amid expectations of a price decline.

Traders estimate gold prices to remain under pressure, with expectations of a cut in import duty, as India's current account deficit has shown an improvement in the recent past.

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