Gold may plunge to $770

Market Outlook

Last week's profit booking in precious metals is likely to continue early this week in the global markets, with spot gold set to fall marginally to $770 an ounce before recovering later in the week on strong fundamentals.

Hedge funds are closely watching developments in the precious metals market to enter active buying for the new year.

"Gold has already hit the lows of this phase. But market technicals indicate a marginal decline that could push the metal to between $765 and $770 an ounce. Hedge funds could get active once the price hits this mark," an analyst said.

Any price below $770 may take gold below Rs 10,000 per 10 gram in India, which could trigger domestic buying for wedding and other occasions, feels Ashok Minawala, the chairman of the All India Gems & Jewellery Trade Federation.

But, according to Prithviraj Kothari of Riddhi Siddhi Bullion Ltd, gold demand may continue to rise in India even if prices go up substantially.

India's total gold imports are expected to touch 1000 tonnes this year compared with 850 tonnes last year.

Fresh bookings usually dry up during December and contracts remain illiquid on year-end profit taking. But a price decline, despite strong fundamentals, may entice traders to take fresh positions.

The next rally in gold may take the price to $830. But if it hits the benchmark $848 an ounce, the rally may see an all-time high of $900 before the end of this calendar year, said an analyst.

Meanwhile, gold remained volatile last week as spot prices in London plunged to $783.5 an ounce from $830 on falling energy prices and strengthening dollar.

The metal touched its first monthly decline since June in London as a drop in crude-oil prices diminished the metal's appeal as a hedge against inflation. Crude oil prices, which slumped to $95 a barrel, led to a decline in the entire commodity basket. Standard gold in India, which hit the psychological barrier of Rs 10,695 per 10 gram earlier last week, declined to Rs 10,235 per 10 gram as consumers kept away from fresh buying.

During the week, pure gold too declined by Rs 460 to Rs 10,285 per 10 gram.

In the Mumbai precious metals market, standard gold slumped further on Saturday to Rs 10,080 and pure gold plunged to Rs 10,130.

Profit booking in gold was also supported by a bearish report by Goldman Sachs, which recommended investors to sell gold in 2008. The report has anticipated a 15-20 per cent decline in prices next year on US economic turmoil.