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Gold may rule steady on emerging demand

G. Chandrashekhar

MUMBAI, Sept. 6

THERE are signs of emergence of demand for gold which would not only prevent a collapse of global prices, but also impart a sense of steadiness to the market in the coming weeks, unless there is any surprise negative development to impact the market.

Gold prices, which had held resolutely above $ 270 per ounce in recent weeks despite downward pressure from a combination of factors - the over-bearing strength of the dollar, diminishing interest (from traders, speculators and investors alike), as well as larger-than expected sales from the official sector and modest physical demand - are expected to remain steady around $ 275 per ounce, probably within its broader $ 270-280/oz range, according to analysts.

The key concern relating to gold prices has been of much larger-than-expected sales from the official sector. Net sales of over 530 tonnes have been identified so far this year, with the total for the year likely to exceed 700 tonnes, the highest level o f net central bank sales in more than 30 years.

But more importantly, concerns are being raised that the annual limit of 400 tonnes of gold sales per year could be breached next year as quotas for individual sellers are yet to be agreed upon. But many believe the threat is somewhat exaggerated. The ma rket is waiting for the International Monetary Fund - World Bank (IMF/WB) annual general meeting to be held in Prague during September 19-28. Will some official sector statements be made during the meeting?

On the other hand, there are supportive factors for the price stability to reassert itself. September is generally the start of a seasonally strong period of physical demand. With monsoon conditions so far favourable in India, there is strong expectation of a resurgence in Indian demand for gold. A good agricultural harvest puts incomes in the hands of the rural population, a part of which gets converted into gold. Onset of festival and marriage season will also boost gold sales.

Demand in the Middle-East is expected to improve. In addition, the market may witness the beginning of interest from traders in Europe ahead of the peak Christmas jewellery demand. These factors limit the downside potential for international gold prices.