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Gold prices are at six months low - should you buy now?

New Delhi, Feb 18: Gold is having its worst run since 1997. After firming up for successive months, gold prices have started showing signs of softening. Because of a fall in demand amid weak global

India TV News Desk [ Updated: February 19, 2013 10:54 IST ]
gold prices are at six months low should you buy now
gold prices are at six months low should you buy now

New Delhi, Feb 18: Gold is having its worst run since 1997. After firming up for successive months, gold prices have started showing signs of softening. Because of a fall in demand amid weak global trend, on Saturday gold prices in India slipped below the Rs 30,000 per 10g level, for the first time since August 17 last year, to close at Rs 29,890. Bullion merchants say the demand has dried up due to end of the marriage season and festive season which normally boost the buying activity.




Reduced demand for the metals as an alternate investment option is also leading to a fall in gold prices in the overseas market. The shift means that the investors are now looking at other sources of investments including equities. Analysts say the withdrawal of high profile names from the bullion market have also added to the bearish sentiment around gold, and is leading to the conclusion that the bull market has peaked some time ago.

Another major reason why people are shying away from gold is consistently high prices with a lot many hoping for a decline in prices. According to Commodity Futures Trading Commission data, short positions in gold are close to an 18-month high. The UBS, which usually has a bullish outlook on the yellow metal, has also trimmed its short-term gold forecast, saying that with the given recovery in economy, the environment is becoming increasingly challenging for gold.

Other important factor that is contributing to gold's poor performance, is the lack of buyers in India and China. The Chinese buyers are staying away from the market due to the holiday over the lunar new year and on expectations that prices will dip.

On the other hand, retail consumers and traders in India, the world's biggest consumer of the metal, are remaining on the sidelines due to a weak rupee, poor demand due to the end of the marriage season, and the RBI putting curbs on imports by hiking import duty to 6 per cent on January 21. The actively traded contract gold for April delivery on the Multi Commodity Exchange (MCX) was 0.07 percent lower at 30,793 rupees per 10 grams. After hitting a high of Rs 32,500 per 10 g on November 11, gold prices have steadily moved downwards in the country. In January, the yellow metal recorded a significant fall of 2.45 per cent. However, in comparison, the decline has not been too steep as compared to other international markets.

Traders say, expectations of a further moderation in gold prices, besides the built-up inventory, are also keeping demand – and imports, to a lower level or under control.

However, despite all these concerns, Marcus Grubb, Managing Director, Investment, World Gold Council, expects the gold demand in India to rise 11 per cent in 2013 to reach 965 tonnes, recognizing that gold represent an important asset to buyers here.

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