Gold hits new 24-year high, surges to Rs 7855

Weakening of yen, inflation fears help metal emerge as safe haven

Domestic spot gold (.999 purity) today zoomed Rs 95 to Rs 7,855 per 10 grams as overseas spot gold crossed its earlier 24-year high to touch $518.60 an ounce in early Asian trading today compared with its previous close of $514 an ounce.

Investment funds' continued to support the yellow metal. Also, the weakening of yen against the dollar and inflation fears are helping gold emerge as a safe investment haven, said traders and analysts. The price of gold has gained about 20 per cent in a year and almost doubled in five years.

In the short term, gold is expected to trade between $505 and $512, with major support seen around $502-$498, said an analyst, adding that if gold were to exceed $512, it may cross $525.

The $525-an-ounce level, which was seemed an impossible target to be achieved by December, seems near, said a Mumbai-based gold trader.

Gold, however, remains vulnerable to funds' liquidation traditionally seen around the end of calendar year. Analysts feel that if the same happens this year, the upward momentum will lose steam.

Further, on such high prices, physical demand is continuing in China, Japan and Turkey. However, physical demand in India, the world's largest gold consuming country, has been hit.

"At present, wedding season is on but fresh gold buying is just about 35 per cent compared with last year. People prefer to recycle gold rather than buy at prevailing high prices," said a top Mumbai-based jeweller.

Fundamentally, gold remains bullish in the medium-term following a demand-supply mismatch. The mining output is decreasing by about 3,000 tonne a year and experts expect the trend to continue for five years.

Further, rising energy prices and inflation concerns will continue to trouble investors for the times to come and thus, favour gold as a better investment vis-a-vis currency.

Other precious metals also gained momentum, in what appeared to be a yellow fever in the market, as an analyst put it. Overseas spot silver rose to $8.81/8.84 an ounce, compared with its previous close of $8.77/8.80 an ounce.

The white metal had hit a 17-year high yesterday when it saw a high of $8.86 during intra-day trading. Overseas spot platinum price rose to $993/997 an ounce from the previous close of $991/996 an ounce.

Earlier on Monday, platinum touched a new 25 year high at $1,006 an ounce. Spot price of Palladium also today hit a new 2-year high at $276/280 an ounce, compared with $274/278 yesterday.