Buying trends change as gold hits new highs

MARKET OUTLOOK

Gold prices are likely to hit Rs 10,500 per 10 grams in Mumbai next week, given the yellow metal's status as the most profitable investment avenue in commodities and strong fundamental support amid rising tensions in southeast Asia.

Technical analysis indicate that the metal will move in the range of $785-754 in the near term in London. By December-end, gold is likely to touch Rs 12,000 per 10 grams in India and $971 in London.

"A rise of Rs 100-200 is unlikely to change the market sentiment, especially during the festive season," said Ajay Mitra, MD, World Gold Council (Indian subcontinent). "Yes, a spurt of Rs 400-500 in a single working session can affect buying sentiments, which is unlikely to happen, given the rupee's appreciation and profit booking on the top," Mitra added.

However, higher prices have changed buying practices. Scrap gold is replaced with fresh gold without any loss of weight and jewellery making charges extra. "I visited two prominent jewellery shops in Chennai yesterday and found that about 15-17 per cent customers have adopted this new practice to keep their price intact with new gold," Mitra said. Generally, jewellers bill 4-5 per cent over and above gold's prevailing price as jewellery making charges.

Meanwhile, pure gold hit the psychological barrier of Rs 10,000 per 10 grams on Friday for the first time in 15 months, but profit booking pulled down the price to Rs 9965 per 10 grams towards the end of the day. Following suit, standard gold crossed the benchmark but looked down to settle the day at Rs 9915 per 10 grams. The two benchmark varieties of gold gained Rs 425 each within a week.

Following the international trend, gold futures for December delivery on MCX perked up to Rs 9846 per 10 grams on October 19 as against Rs 7921 per 10 gram on October 12.

In London, gold jumped substantially to $768.25 an ounce from $748.5 in the last one week. However, the metal slid from the highest in 27 years after crude oil declined from a record and the dollar rebounded. This reduced the metal's appeal as a hedge against inflation.

Gold retreated in London on Friday after climbing to $776.90 an ounce, the highest since 1980, while crude oil fell from the highest ever benchmark level of $90.07 a barrel. The dollar rose after touching a record $1.4319 against the euro. Rupee closed slightly lower at 39.72 against dollar after hitting the record intra-day low at 39.81. The currency opened at 39.70.

Gold futures for December delivery fell 30 cents to $768.40 an ounce on the Comex division of the New York Mercantile Exchange.

Gold had climbed to the highest for a most-active contract since January 22, 1980, the day after the price reached a record $873.

Investors sold the metal heavily on apprehension of it's failure to sustain $770.