Gold glitters

Source:FE:SANJEEB MUKHERJEE: Thursday, May 13, 2010 at 2123 hrs IST


 The Greek debt crisis and the subsequent weakening of the euro pushed gold prices to record highs. Panic-stricken investors rushed to shift their investments from currencies to the precious yellow metal, traditionally considered to be a safe option in times of crisis. In a matter of days, gold prices reached a record high of $1,243.55 an ounce in the spot markets, a gain of nearly 20% since early February 2010. US gold futures also followed suit, hitting a record of $1,244.80 an ounce. The metal’s dazzling rally has also rubbed off on silver, pushing spot silver to $19.57 an ounce, its highest since March 2008.

Now a target of even $1,300 per troy ounce for gold looks quite realistic provided the metal manages to break the resistance of $1,280 per ounce. Given that the world investor community is not entirely convinced about the bailout package announced for Greece and also fears that the crisis could spread to other European nations, there is a strong possibility that gold will continue its forward march, at least for the time being.

The scale of investor buying can be seen in the holdings of the world’s largest gold-backed exchange-traded fund, the SPDR Gold Trust, which said its holdings stood at a record high of 1,192.150 tonnes as of May 10. Holdings in the world’s largest silver-backed exchange-traded fund, iShares Silver Trust, rose to 9,115.15 tonnes as of May 11, up 27.43 tonnes from the previous day. This is a definite sign that investor interest has turned strongly in favour of the precious yellow metal and its sister. The surge, however, could not have come at a worse time for India, the world’s largest consumer of gold. Just days ahead of the Akshaya Tritiya festival, gold prices in India have risen to an all-time high of over Rs 18,000 per 10 gm and if the trend continues for a few more sessions, there is a possibility that they might even touch Rs 20,000. Already, some traders fear that gold consumption during this year’s Akshaya Tritiya could drop to 20 tonnes from 42 tonnes last year because of high prices. The only saving grace—the rupee is fairly strong, which should make importing gold slightly cheaper.

sanjeeb.mukherjee@expressindia.com