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Why is the gold price falling?

Source : BUSINESS LINE
Last Updated: Fri, Aug 01, 2008 04:11 hrs
gold

Mumbai: The sharp fall in crude oil prices and a strengthening dollar against euro have pushed down gold prices by Rs 1,015 for 10 grams in the last two weeks.

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Pure gold has fallen from Rs 13,625 per 10 grams on July 17 to Rs 12,610 per 10 grams on Thursday. Crude oil has plunged from its record high of $147 a barrel earlier this month to $122 a barrel this week. Gold prices nose-dived by Rs 305 for 10 grams to Rs 12,495 on the bullion market in Mumbai on Wednesday on renewed offerings from stockists triggered by fall in the overseas markets.

However, active buying at lower levels by jewellers and stockiest saw prices improve by Rs 55 to Rs 12,610 on Thursday. Standard gold rose to Rs 12,550 per 10 grams.

Prithviraj Kothari, Director, Riddhi Siddhi Bullions, said the much-needed correction in prices last one week had triggered the demand from jewellers.

Riddhi Siddhi Bullions, importers and suppliers of gold to jewellers, has seen sales going up to 10 tonnes in the last one week from about 200 kg — 300 kg in last one month.

Suresh Hundia, President, Bombay Bullion Association, said the correction in prices bodes well for ensuing festival and Diwali demand.

“If the crude oil continues to fall, then the gold prices in India may touch Rs 11,800. Though the short term outlook remains bearish, we expect prices to go up in the long term,” Hundia added.

However, retail jewellers are expecting the slowdown in the economy to take its toll on the gold jewellery demand given the high inflation in India and globally.

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Shreyas K Doshi, Managing Director, Shrenuj Diamonds, said, jewellery demand hadbeen growing 15-20 per cent in last two years, however, given the high inflation and resultant rise in gold prices will slowdown demand to 10-15 per cent this year. Diamond production has been falling 10-15 per cent in last two years and if this trend continues we will have a scarcity by 2010, he added.

Jewellers are now banking on promotional events and innovative schemes to spur demand.




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