Just when you think the hot run in bullion has hit the roof and will taper off, the ceiling seems to rise a bit more. Gold and silver, which have been ruling at prices that were unimaginable just a few months ago, were trading near all-time highs on Monday, while futures broke records.
Gold closed at Rs21,780 per ten grams on Monday, while silver hit Rs64,300 per kg. In the futures market, gold ruled at Rs22,538 per 10 grams, and silver Rs66,600.
Against a 9.7% rise in the Bombay Stock Exchange benchmark Sensex in the last one year, gold has risen by 32% and silver by 138%, making the two metals far more lucrative investment options.
But who would buy the metal at these levels? Experts do not see the rally continuing for long. But they had not expected the rally to continue so long either.
The ongoing run is seen as being driven by the global market, which are worried by the reigning high crude oil prices fuelled by West Asia and North Africa, the ongoing European debt crisis and rising inflationary concerns worldwide. “I do not see prices to firm up more from here but the Libyan problem along with the European debt crisis is leading to a dream run for gold and silver,” said Bhargava Vaidya, a Mumbai based gold expert and trader. “Silver is overreacting... speculators are playing on it because it is smaller in value as compared to gold.”
Gold is always perceived to be hedge against oil driven inflation. While domestic inflation has been a cause of concern, China on Suday raised its deposit reserve ratio in a bid to contain its own inflation problems, and economists feel the Reserve Bank of India may raise the repo rate (rate at which RBI lends to commercial banks) by up to 50 basis points in its May 3 monetary policy review.
“Market players feel inflation is out of control and are not reacting to the central banks moves, hence gold and silver continue to rise,” said a gold fund manager at a mutual fund house, who did not wish to be named.