The yellow metal is all set to peak at $720 an ounce, even as consumption is poised to go up moderately. Will gold touch the psychological barrier of $720? Investment funds are bullish but cautious. Bargain hunters are still looking for an opportunity, even at the current price level of $690 an ounce, on anticipation of a further rise.
"The target is not far but neither is it easy to achieve," says a trader, arguing that once gold profit booking touches the peak and pushes the metal $15-20 down every day, a repetition of the peak value cannot be avoided. "
Gold would easily touch $720 an ounce this time, after a year-long lag," says Madhusudan Daga, a precious metals analyst.
Following political upheavals in West Asia, gold prices hovered around $700 an ounce in February 2007. Traders had talked of a sure decline in the price after the situation eased. But that did not happen.
"Banks have raised the fixed deposit rate to 11.5 per cent. Therefore, gold money is diverted to the banks," said Prithviraj Kothari, director, Riddhi Siddhi Bullion.
Currently, that the high gold price will hold is assured by the fact that there are no issues - like the West Asia turmoil - dogging the precious metal, says Daga. Bullish energy prices also helped gold prices rise as the metal is an investment hedge against oil-led inflation. Despite the fact that gold has long been considered an investment option, considering its links with oil, currency and stocks, some analysts believe there's little room to invest for short-term profits, as the metal's price has touched an inflationary peak.
Gold is a refuge in times of economic uncertainty. Given the current price levels, analysts seem torn between the metal's prospects and the anticipated price moderation in days to come.
A rising disposable income for the middle class, particularly in India, and its affinity with gold jewellery, are signs that the metal's demand is rising.
"Gold has missed the growth line of other metals like copper and aluminium, simply because its demand has gone up in developing countries. But with the pace of prosperity in these countries, where gold consumption is in the form of jewellery, it's good news for the metal," said a trader.
But gold supply is likely to remain low for now, due to a fall in production in existing mines and the shortage of permits for new mines.
Indian gold traders have had to experience restraints because of a bullish sentiment due to rupee appreciation. Currently, the gold price of Rs 9,420 per 10 gram is comparable with the international gold price of $650 an ounce (1 ounce = 28.35 gm) a month ago.
The rupee has appreciated about 5 per cent against the dollar in the last one month. And rising gold prices have only brought down the exporter's income.
According to GFMS, a London-based precious metals research major, global gold production is likely to rise moderately by 2 per cent to 2,500 tonnes in 2007, despite the commissioning of new mines, capacity ramp-up in the existing ones and lower production cuts, factors that dampened gold output last year too.
Global gold production posted a substantial 79-tonne decline in 2006, leaving the output at a 10-year low. China recorded a robust 8 per cent increase in year-on-year output, even as the Asian output declined the most, falling by 46 tonnes, compared with relatively modest losses in North America and Africa, where output declined by 26 tonnes and 17 tonnes, respectively.
