Will Gold Rise Further?

‘Yes’ is the consensus amongst experts who believe gold demand in 2013 will be higher as will be the prices.

The wedding season in India has brought in some cheer to the otherwise gloomy domestic gold market this year. Gold prices in the local market have gained 1.76 per cent in November, helped by a weaker dollar overseas, following a loose monetary policy stance by the US. There is further happy news as World Gold Council forecasts that global gold demand in 2013 should be led by further strength in Chinese demand and a recovery in India, helping the precious metal to continue its bull run into its 13th year. 

“Demand is good as people feel that the rates are reasonable,” says Hasmukh Bafna, President, Gold Chains & Jewellery Wholesalers Welfare Association People. “However, the fear that the prices could hit Rs. 33,000 in December is also compelling buyers to accumulate now,” he said.

“The sudden surge in the buying in November is also owing to the fact that there are very few auspicious marriage dates due to bad planetary positions, this wedding season” he added. Demand for the yellow metal in India during the wedding season, which will continue till early January, generally goes up during this period.

According to Marcus Grubb, Managing Director, World Gold Council, the demand for gold in India should rebound after falling about 20-25 % in 2012 to 750-800 tonnes in comparison to 986 tonnes in 2011. “During the first two quarters of this year, the demand for gold was low because of jewelers strike due to custom duty, weak monsoon, among other factors,” he said.

Though the demand for gold has seen an upward movement during festival season this year, he said the demand for yellow metal was 600 tonnes during first three quarters of 2012 which was lower than 800 tonnes in corresponding period last year. He further said the demand for gold in India surged sharply by 39 per cent during 2006 till 2011.

Asserting that India would always have sustainable long term demand for gold, he said the aggregate consumption of gold in India is expected to grow to USD 1.73 trillion by 2025 from USD 420 billion in 2006. He believes there is also supply constraint of gold.

According to experts, RBI asking banks not to lend for purchase of gold, will not have much of an impact on gold demand. “The directive is not going to affect the demand as banks have very small exposure towards gold,” they said.

The “fall in the USD dollar index coupled with continued liquidity easing measures in USA could trigger a fresh long term price rally,” says Milan Bavishi-Head Research-Inventure Growth & Securities. “Over the short to long term, Gold prices are expected to buoyant,” he said. “MCX Gold prices are expected to remain in the range of Rs. 31000 to Rs. 34000 per 10 gram,” he added. 

Bhavishi expects the rally in gold  to continue in the coming months. “An upside break of $1900 on Comex Gold can trigger a rally to $1955. The movement in MCX Gold will depend on how the USD/INR moves. However, the overall bias will remain up,” he said.

Bhavishi also expects the demand trend to continue in the short term, “India was the strongest performing market with growth rates of 7% YoY in jewellery demand and 12% YoY for investment demand,” he added.

However, Dharmesh Bhatia, Associate Vice President, Research, Kotak Commodities Services feels that the rally will continue as the price is still holding the psychological support level of $1700 per ounce and Rs. 30000 per 10 gram. “The next level will be $ 1850 per ounce and Rs. 33500 per 10 gram,” he said.