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Surging gold pauses, at critical juncture

business Updated: Aug 27, 2011 02:43 IST
Sachin Dave

As the prices of gold continue the volatility after last two weeks of rally when it increased anywhere between 1% to 2% per day, analysts say the yellow metal is in a very critical stage now.

Analysts are still upbeat that gold could touch Rs 30,000 per 10 grams within two months, when the festive season in India would trigger gold purchase. However, they also point out that a lot would depend on how the international events, involving the European Central Bank (ECB) and its help extended to PIGS (Portugal, Italy, Greece and Spain), unfold.

The investors are also monitoring the US monetary policy. The policy too could trigger investors to exit or enter gold futures depending on what comes out of it.

The price of gold futures on Friday touched Rs 26,655 per 10 grams for October futures at MCX. The price of the October futures had fallen to a two week low of Rs 26,451 on Thursday triggering a point of view that the rally in gold was over.

Analysts are, however; unanimous is predicting that there could be slight corrections in next week up to Rs 500.

"There is no bubble in gold as the fundamentals remain strong for the metal. India, which is the biggest buyer of jewellery in the world, would see a huge demand and prices could touch Rs 30,000 per 10 grams within next two months," said Hitesh Jain, Commodity Analyst at IIFL.

But analysts are also keeping a tab on international events and say that if the situation in Europe and US improve then investors would move away from gold to riskier investments.

"If the PIGS are bailed out and US recovery looks plausible post the monitory policy then you would see that investors would move towards riskier investments like equities or sovereign bonds after exiting gold. And presuming this happens, then prices of gold could touch Rs 24,000 per 10 grams," said Atul Shah, Head Commodities, Emkay Global Financial Services.

Industry experts say that the rally gold witnessed in the past two weeks was unsustainable and that a minor correction was always expected. Also after CME Group (a global derivative platform) raised the margin requirements on gold trading at its Comex unit for the second time in October increasing selling pressure on investors. The minimum cash deposit for borrowing from brokers to trade gold future was raised by 27%.

"There is also speculation that margins in India could go up too, which would affect the investors. But in India, physical demand is strong," added Shah. For those who have missed out on gold rally next week could be interesting as there would be an opportunity to enter the market, say analysts.