The Hindu : Gold rides on dollar's weakness

Online edition of India's National Newspaper
Thursday, May 22, 2003

Business

Business

Gold rides on dollar's weakness

By Ramnath Subbu

MUMBAI MAY 21. Gold prices, after having declined in a war situation during the Iraq war for the first time, have staged a smart comeback. Gold has been moving around its three and a half month high of $370 an ounce and Rs. 5,700 level in the domestic market. The precious metal was up on dollar weakness along with tension in the Middle East as also global economic worries.

From $348 an ounce in the beginning of March, it came down to $330 and in the domestic market, it had reacted to Rs. 5,250 from Rs. 5,600 (10 gm).

The U.S. military success against Iraq had prompted a sell-off after sustained buying. The recent jump, however, has also been fuelled by comments by the U.S. Treasury Secretary, John Snow, which gave rise to speculation that Washington was happy with a weak dollar, particularly as this would boost exports and lower imports. This had caused the dollar to slip into a four year low against the euro and more than three year low against the Japanese yen.

"The main factor then, is the strong euro which has taken control and the subsequent dollar weakness against it and the Japanese yen. The euro is quoting at 1.17 to the dollar and in fact, now, as earlier, gold prices rise when the U.S. dollar falls but also with a strengthening euro," said Dinesh Parekh, a bullion analyst.

Typically, gold thrives in times of economic and political uncertainty and has gained by about 13 per cent since early April when investor interest shifted from the Iraq scenario to struggling U.S. economy and a weak dollar.

"The Comex stock of gold has gone up by 20.6 per cent since December 2002. The real positive factor is that in spite of an increase in volume of more than three lakh ounces, the price has not come down. Investors are buying gold internationally and more fully shifting faith to gold rather than the dollar. The `store of value' concept of gold is back," said the bullion analyst.

In the domestic market too, gold has moved up in consonance with international markets. From Rs. 5,370 (10 gm) in the beginning of this month, it has moved up slowly to Rs. 5,725.

Recycled gold is not coming into the market in volumes as it was the case earlier. "Three months ago, more than 300 tonnes of recycled gold came in. This will go up if prices remain high," said Mr. Parekh, adding that at Rs. 5060-5,300, almost all recycled gold which was sold was repurchased.

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