Gold is likely to test record high this week on concerns that heightened tensions between the West and Iran might worsen, prompting investors to buy the yellow metal to hedge risk.
With gold prices likely to cross $1,800 an ounce, traders and analysts say the domestic spot prices may surpass the previous record of Rs 29,140 per 10 grams that the metal had touched on November 16. Backed by strong fundamentals, the metal on Saturday closed at Rs 28,510 per 10 grams on the Multi Commodity Exchange (MCX).
It had fallen to Rs 26,570 per 10 grams on December 29 on profit booking, following concerns over rescue package to bail out the Greek economy. However, in the last two months, with liquidity increasing, all asset classes have seen rally.
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More recently, with US sanctions on Iran and the consequent tensions leading to hardening of crude prices, shine seems to be returning to gold. High oil prices increase inflation and the demand for gold, a hedge against inflation, also rises.
"The tensions between Iran and the West would drive gold prices to surpass Rs 30,000 per 10 grams, maybe in a week or two," said Prithviraj Kothari, president of the Bombay Bullion Association and the managing director of Riddi Siddhi Bullions Ltd.
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The United Nation's International Atomic Energy Agency (IAEA) has said in its quarterly report that Iran has stepped up its controversial uranium enrichment drive.
"There are many positives that support the claim that gold prices could set a new record next week. Going by the estimate that gold would go past the $1800 an oz in London, if the rupee remains at its current level, the metal may shoot up to Rs 29,500 per 10 grams on MCX," said Gnanasekar Thiagarajan, director, Comm-trendz Research. Today, near-month gold closed at Rs 28,670 per 10 grams on MCX.
In dollar terms, gold had shot up to $1,900.23 an oz in London on September 5, due to the mounting global inflationary pressure. But, the price declined to $1,545.97 an oz on December 29. The metal again turned bullish, to trade at $1,772.45 yesterday. Traders forecast the metal to touch $1,800 an oz this week. World Gold Council MD (investment) Marcus Grubb, however, says gold would get support from high demand from Asia, led by China and India.
"China reported a 20 per cent rise in annual gold demand in 2011 to 769.8 tonnes and the trend is likely to continue this year too. The country is set to emerge as the largest gold market in the world for the first time in 2012. The long-term fundamentals for gold remain strong, with a diverse and growing demand base, coupled with constrained supply-side activity," said Grubb.
"The fundamental landscape appears supportive," said Ajay Kedia, an analyst with Kedia Commodity. Oil prices have been soaring due to a swelling risk premium, as Iran-linked supply disruption worries multiply. The recent news flows suggest China, Japan and India - the top three buyers of Iranian crude - would substantially reduce their imports amid western pressure.
"For the next week, we expect gold prices to remain higher. There could be resistance in the range of Rs 29,030-29,080 per 10 grams. Further above, another strong resistance is seen at Rs 29,380-29,400. Trading consistently above Rs 29,410 would trigger a rally initially towards Rs 29,730 per 10 grams and again towards Rs 30,000," said Naveen Mathur, associate director, Angel Commodities.