Domestic gold prices get fillip after rupee correction
Domestic gold prices that have been lagging behind international prices could get a fillip from an expected correction in the rupee from the current levels, say analysts, report Vyas Mohan and Suprotip Ghosh.business Updated: Apr 26, 2007 05:28 IST
Domestic gold prices that have been lagging behind international prices could get a fillip from an expected correction in the rupee from the current levels, say analysts.
“The rupee is overvalued by around 12 per cent. A stronger rupee reduces the price of landed gold, more or less by the extent the currency is overvalued. Now, it has to get adjusted somewhere. This means that any person who buys gold now stands to gain roughly about 12 per cent on rupee re-rating,” says Shailendra Kakani, research head of Commodity Research Group.
The price of domestic gold has been in discord with international prices for a while now. Though gold prices have been firming up in the international market, price of the yellow metal has shown a weakening trend in the domestic market, owing to strengthening rupee.
While spot gold prices on the London Metals Exchange gained 1.45 per cent from USD 676.1 per ounce as on April 12, 2007 till date, those on the Multi Commodity Exchange dropped by 3.3 per cent from Rs 9,429 per 10 gram to Rs 9,114 per 10 gram in the same period. The reason – That is when the rupee started showing clear signs of testing historic levels it recorded against the dollar.
In the said period, the rupee grew stronger against the dollar by 4.5 per cent. The rupee, which was trading at 42.85 against the dollar on April 12, ended Wednesday at a nine-year high of 40.9.
Analysts are of the view that the phenomenon is a blessing in disguise for investors. However, they expect domestic gold prices to test slightly lower levels before starting the northward journey.
“The rupee appreciation and the consequent fall in gold prices in the domestic market is a blessing in disguise for investors. The government clearly wants exports to get cheaper and gold prices could test slightly lower levels, where one could start buying. At today’s dollar-rupee exchange rate, gold June futures on the MCX could touch Rs 9,175 per 10 gram levels,” says T Gnanasekar, director of Commtrendz Research.
As the market is keenly awaiting economic data from US to flow in by the weekend, market say it is probable that gold prices fall further by around 2 per cent, before reversing the trend.
“We have a lot of data coming from the US this weekend. If the rupee starts climbing back to near 42-levels, that could see gold prices going up by more than 4 per cent. This is expected to start happening in 15-20 trading sessions from now,” says an analyst of Motilal Oswal.