Ruchira Singh / Reuters
Mumbai: Indian banks and brokerages expect gold prices to rise by December as higher inflation, growth worries and financial market troubles are seen drawing more investors to the safe haven appeal of the yellow metal.
“The turmoil in financial markets will benefit gold as investment would flow into assets not affected by the sub prime crisis,” said Rajini Panicker, head of research at MF Global Commodities India Ltd.
Gold prices were seen at Rs12,120 per 10 grams at the end of September, rising thereon to Rs12,725 at the end of December, the median of a Reuters poll of 14 banks and commodity brokerages showed.
The outcome was a scale-up from the previous poll in January, when gold prices were seen at Rs11,920 at the end of the year.
The major trigger in the oncoming quarters was likely to be interest rate cuts in Western countries that guide local prices, analysts said.
“In September we expect interest rate cuts by all major central banks. This will lead to a reallocation of funds across all asset classes of which gold will be major gainer,” said Kishore Narne, vice president - commodities at Anand Rathi Commodities.
“In December we expect consolidation in commodities market, which will lead to gold prices stabilizing,” Narne added.
On Thursday, gold futures on the continuation charts of the Multi Commodity Exchange of India Ltd (MCX) was at Rs12,200 up 0.21% over the previous day.
Gold futures on MCX peaked at Rs13,397 on 17 March, surging on the sub-prime housing market bust in the U.S. that sent investors rushing to gold as stocks and currencies tanked. Over last year, current prices of gold are up by 28%.
A stronger rupee against the dollar is expected to cushion gold prices to an extent in the next quarter, a dealer in a state-run bank said.
“Up to September, the rupee can appreciate by up to 39.70 to a dollar, but after that, the government may step in to help exporters,” the dealer in the state-run bank said.
On the flip side, low physical demand and gold sales by central banks can cap gains, an official in IndusInd Bank said.
“Auction of gold by international financial bodies and central banks will keep prices under control. Recycled gold will maintain domestic supply if prices rise,” Pinakin Vyas, chief manager - treasury at IndusInd Bank said.