Gold hits 8-month high on global cues

Rupee depreciation, import duty hike support increase

Gold continued its upward march to hit an eight-month high in   Mumbai’s popular Zaveri Bazaar on Saturday, following returns of safe haven buying in global markets. The yellow metal surpassed the psychological barrier of Rs 31,000 per 10g for the first time after December 12, 2012.

Standard gold for spot delivery jumped 2.05 per cent or Rs 630 to close at Rs 31,325 per 10g in Mumbai. The metal received strong support from both sides. While prices in the overseas markets were strong, the record depreciation in the rupee against the dollar escalated gold’s upward move. Over the month, however, gold price gained 17.59 per cent from the level of Rs 26,640 per 10g on July 16. Also, the government’s decision to raise import duty by yet another two per cent to 10 per cent last week had a direct bearing on gold prices in domestic market.

“Three factors affected gold price rise last week. While the two per cent hike in import duty made the precious metals further costlier by Rs 600 per 10g, the price escalation in global markets, coupled with the rupee’s record depreciation, helped the metal’s price rise,” said Naveen Mathur, associate director, Angel Broking.

Gold futures for delivery in December rose on Friday to settle at $1,371 an ounce (oz) on the Comex division of the New York Mercantile Exchange, up 4.4 per cent on the week. Spot gold in London climbed as high as $1,373, the highest since June 19 before settling at $1,363 an oz on Friday, a weekly gain of 4.78 per cent over the week.

“A sharp upward march in the precious metals was due after their sustained softening. Gold is steadily moving towards $1,400 an oz in global markets translating thereby into Rs 32,000 per 10g in domestic markets,” said Gnanasekar Thiagarajan, director, Commtrendz Research. “These levels, though, achievable in the week-to-10 days but would not be sustainable.”

Gold price gains strength from geopolictical tensions as well. Currently, Egypt is passing through a public revolt, which may possibly spread into other parts of West Asia, the region which targets gold as safe haven in case of political instability. Certainly, therefore, gold’s safe haven buying seems to have returned.

In addition, the World Gold Council (WGC) reported a strong buying sentiment from China with an annual gold demand estimates at around 1,000 tonnes, substantially higher than last year and comparable with annual demand in India, the perennial largest consumer. Also, the Chinese and US data indicated a recovery in their economy, coupled with a positive mood coming in from the Euro zone economies.

“All these sentiments coincided with the possibility of lower mine production due to the ongoing strikes on some gold mines in South Africa, which allayed fears of gold’s availability to remain in deficit,” said Thiagarajan.

Silver followed suit and gained three per cent, or Rs 1,505, to close on Saturday at Rs 51,485 a kg following the global trend. On Nymex, September silver rose on Friday to settle at $23.322 an oz, up 14.3 per cent on the week. The white precious metals jumped 23.55 per cent in one month from the level of Rs 41,670 a kg on July 16. During the last one month, the rupee fell 4.03 per cent from 59.32 against the dollar on July 16.

“It would be interesting to see, how the rupee behaves on Monday to set a direction for precious metals,” said Thiagarajan.