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Gold prices may remain firm

By Ramnath Subbu

MUMBAI SEPT. 27. Gold prices have, in the environment of a weaker dollar, been moving up and in fact, scaled to $392 per ounce on September 25, the highest since May 1996. This surpassed the previous high of $388.5 touched in February. The domestic price of Rs. 5,870 per 10 grams was lower than the new high of Rs. 6,100 reached in February.

However, on Friday, there was a reaction of sorts and gold settled at around $381 and Rs. 5,780 in the domestic market; down by Rs. 90 from Friday's high.

In its Gold Survey — Update 1 released a fortnight ago, Gold Fields Mineral Services had forecast that gold prices could go beyond the $390 level and possibly breach the $400 mark before the end of the year.

Factors are seen as favourable — stocks looking shaky and the dollar heading south, according to GFMS. However, the offtake is expected to peter out in India above $390, GFMS said.

"Then the market could see yet higher volume of scrap coming back to the market. We are forecasting a modest rise in this over the second half but things do not have to change that much for scrap to hit the 1000 tonne mark this year.''

In the event of gold crossing the $400 mark, there is a possibility of gold sales by central banks, mainly those which are not signatories to the Europe Central Bank Gold Agreement. GFMS also forecast a substantial drop in producer de-hedging in the second half.

Domestic gold prices, although firmly entwined with the international price movements, are now at a crucial juncture. The end of the Shraddha period (when purchases are normally few) on September 25 signals the commencement of the festive season. "This time, however, there are fewer dates for marriages and it is believed there will be fewer due to lack of auspicious dates. However, Madhusudan Daga, bullion analyst and consultant, GFMS, estimates that the higher rates should continue because of sustained demand.

According to GFMS, consumer demand for gold in India fell to 547.3 tonnes in 2002 from 709.7 tonnes in 2001. Now the market for gold here is set for a robust rebound.

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