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A dull week

Dilip Shah

Gold prices in the Indian bullion markets remained under pressure amid slow volumes, thanks to fresh losses in the global prices.

"Renewed volatility in the gold prices has kept seasonal buying at a low-ebb as buyers stayed away for want of stability in the market," said Mukul Sonawala, president Bombay Bullion Association. "A lower than expected response generated by the third auction of the Bank of England and an announcement of sale by the Central Bank of Dutch has triggered panic selling in the international bullion market. This has reflected in the domestic market witnessing sluggish activity," Sonawala explained.

A series of raids and enquiries carried out by the Income Tax and Sales Tax Department in the Bombay Bullion market during the last couple of weeks has also kept arrivals and off-take at a minimum level. According to a bullion trader who did not wish to be named, "Initially raids were carried out on bullion refineries; now the spotlight is on the bullion dealers."

The price of gold biscuit (116.65 grams) has fallen to Rs 51,500 per piece from Rs 53,300. At one stage they crashed to a low of Rs 51,100 to Rs 51,200 during the week.

24-carat gold fell to Rs 4,400- Rs 4,425 (per 10 gram) from Rs 4,550. Gold prices in the global market crashed to $ 275-276 per ounce against $288-290. Gold was last quoted at $ 278-279 per an ounce.

The near-term support for gold is at $ 275 and if it is broken, it is likely to move southward towards fresh twenty year low," bullion chartist Ashok Trivedi said.

Gold producers have started hedge selling from which they had exited in the October rally. The hedge selling has become more attractive since lending rates have fallen to two per cent from the nine per cent. Australian producers have hedged 220 tonnes of gold during July to September; the hedge quantity is likely to pass this level in the October- December period.

Long positions of more than 300,000 ounces of gold were liquidated in the New York market after the Bank of England auction. "Other European and Asian bullion markets have followed the wave of long liquidation prompting fall in the prices. The Dutch Central Bank has said that it will sell 300 tonnes of gold in the next five years, including a 100 tonne sale in the first year. "This sale is just part of the Washington Agreement signed in September 1999 which stated that 15 European Central Banks would sell 2,000 tonnes of gold over the next five years," Parekh added.

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