Strong dollar may take shine off gold

MARKET OUTLOOK

Gold prices are likely to remain subdued next week on uncertainty over the dollar movement and fears of inflation fading. A section of economists believes that the dollar may remain firm despite a stream of negative data on the U S economy and weaker-than-expected US non-farm payroll data, which were released late last week.

From a save-haven status, gold is facing challenges to retain its status as the best investment avenue in times of the economic crisis. The yellow metal has plunged by about 25 per cent this year from a record of over $1,000 an ounce in March.

Global investors have changed their strategy towards gold unlike the one they had opted for in the previous economic recessions, when the yellow metal was considered to be the only remunerative investment avenue. “Now, investors are unwilling to allocate fresh funds anywhere, be it equity, housing or commodities,” said Jayant Manglik, head (commodities), Religare Commodities.

Manglik believes that if the current trend continues, investment in commodities may fall further, thereby pulling down gold prices by 5-8 per cent in the next two to three months.

Moving in a close range of Rs 150, standard gold fell by Rs 50 in the Mumbai spot market to close the week at Rs 11,715 per 10 grams on Friday. Pure gold followed suit and closed Rs 60 lower at Rs 11,770 per 10 grams.

In London, gold slumped $6 to close at $735.25 an ounce (oz) as the dollar gained against the euro, the largest-traded European currency on discouraging US non-farm payroll data. Last Thursday, a series of interest rate cuts in Europe provided a temporary fillip to stock markets, but gains could not be sustained for long.

On MCX, gold April 09 contract went down by 3.98 per cent to Rs 11,841 per 10 grams last week. Gold M December 08 contract fell by 2.26 per cent to Rs 11,501 per 10 grams, while gold guinea January 09 contract dropped by 2.48 per cent to Rs 9,306 per 8 grams.