Gold guns for the golden milestone as uncertain markets make banks invest in commodity

Gold prices surged to an all-time high of Rs 31,980 per 10 grammes (gm) here on Wednesday on the back of continued buying by stockists for the approaching marriage and festival seasons and investors preferring the precious metal to uncertain equities.

Leading Mumbai-based bullion trader Ketan Shroff told Mail Today that banks and hedge funds are investing in gold as equity markets and currencies have turned uncertain.

“Most countries in Europe are printing more money to give a stimulus to their economies and this is leading to depreciation in their currencies which makes gold a safer bet for banks and hedge funds,” he explained.

Shroff said he expected “the firm trend in gold prices to continue for the next quarter or two and the price of the metal could peak from Rs 33,000 to Rs 34,000 per 10 gm by the year-end.” The soaring prices of gold are likely to lead to a slowdown in the quantity of retail purchases of gold for marriages and the festival season, which includes Diwali and Dusshehra, Shroff added. However, in value terms, gold purchases by Indians would go up due to the higher prices, he pointed out.

Gold of 99.9 and 99.5-per cent purity advanced by Rs 130 each to set a new peak level of Rs 31,980 and Rs 31,780 per 10 gm respectively. The yellow metal had gained Rs 240 on Tuesday. However, the price of silver fell by Rs 200 to Rs 60,000 per kilogrammes.

Kumar Jain, vice-president, Mumbai Jewellers Association, said that with the marriage and festive seasons round the corner, the demand for gold has gone up in the domestic market.

He said there is also a perceived shortfall in supplies as imports of gold had come down sharply in recent months due to the hike in customs duty and depreciation in the rupee vis-a-vis the dollar.

Jain pointed out that the psychological threshold of domestic buyers has also gone up as the price of gold is rising. And since gold is, in a sense, considered an essential good during marriage, the prices are likely to rise. The euro and dollar have both depreciated, which has also led to an increased buying of gold as a safe haven investment, he added. Investors are also being seen shifting funds from melting equities to firming bullion.

According to the latest World Gold Council (WGC) report, India and China continue to dominate the global consumer demand accounting for a combined 45 per cent of the total demand for jewellery, bars and coins during the second quarter. The global demand numbers are, therefore, heavily reflective of movements in these two nations.

Gold imports into the country are likely to fall by as much as 26 per cent, or by 200 to 250 tonnes, in 2012 as record high prices hit the budgets of consumers.

Domestic consumers were disenchanted by record high local prices as the rupee fell sharply against the dollar pushing up the price of gold Rs 30,000 per 10 gm, the WGC report states. The value of the rupee plays an important role in determining the landed cost of the dollar quoted yellow metal.