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| Rising rupee dulls gold's global price rise in India |
| Dilip Kumar Jha / Mumbai May 24, 2009, 00:09 IST |
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Despite the price of gold rising to a two-month high in London, it remained rangebound in domestic markets due to the rupee’s appreciation against the dollar.
The weakening dollar, coupled with retreating global financial markets, has also increased gold’s appeal as a safe investment avenue at a time of economic crisis.
As a result, the gold price has surged 8.14 per cent in dollar terms since May 1, hitting the two-month high of $966 an ounce on Thursday.
But, standard gold in the local bullion market has gained only moderately, by 1.29 per cent to close at Rs 14,540 per 10 g during the period under review.
The rupee, during the same period, has strengthened by 5.99 per cent, to close at 47.09 against the dollar. Reports say an increase in US treasury bill yields indicates that inflation may accelerate in the days to come.
The spread between yields on Treasury Inflation Protected Securities and 10-year notes, reflecting the outlook among traders for consumer prices, reached 1.73 percentage points, the highest since September. This means inflation may become a cause of serious concern for global economies again, an analyst said.
In India, the win of the UPA alliance is also likely to strengthen investors’ confidence, boosting economic recovery.
“The appreciating rupee has nullified the impact of global price rise on gold in domestic markets,” said Harish Galipelli, head - research of Hyderabad-based Karvy Commodities Broking.
Gold has risen about 2.5 per cent this week. Traders said the metal’s upside was becoming limited, ahead of a three-day weekend in the US and as current prices prompt some investors to take profits while others halt investment in gold-backed exchange-traded funds.
However, with the fresh economic blues that have emerged, in which bankruptcy looms large for more top US companies, including General Motors, the prospects for gold look better, said Galipelli.
Naveen Mathur, Associate Director - Commodities and Currencies of Angel Broking, feels the rupee is likely to see strong support at 46.50, which if breached will see gold prices decline afresh in the Indian markets.
The near-month gold contract in New York closed at $953.40 on Thursday. On the Multi Commodity Exchange (MCEX), gold for delivery in June witnessed a modest recovery at Rs 14,536 per 10 g, after opening low at Rs 14,492 per 10 g. The far-month December contract, in contrast, fell 0.36 per cent to trade in the late evening session at Rs 14,535 per 10 g.
According to participants, retreating equity markets prompted investors to shift their funds towards gold.
Cash flowing into the world’s largest gold-backed exchange-traded fund, the SPDR Gold Trust, halted since rising on May 13 for the first time since it began declining after hitting a record high on April 9. Its holdings remained unchanged at 1,105.62 tonnes on May 21.
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