Gold reverses early gains; physical demand up

Gold reverses early gains; physical demand up

Mumbai: Gold in India reversed early gains on Thursday afternoon following overseas markets, although a weaker rupee restricted the prices from falling further, analysts said.

The most-active gold for December delivery on the Multi Commodity Exchange (MCX) was 0.25% lower at 26,798 per 10 grams, reversing from an early high of 26,832.

At 2:03pm, US gold was 0.3% lower. . Investors are watching a meeting of G20 finance ministers and central bank governors in Paris this weekend, after Germany and France pledged to unveil new measures to solve the debt crisis by the end of the month.

The rupee plays an important role in determining the landed cost of the yellow metal, which is quoted in dollars.

“Demand has picked up. We have done some volumes as festivals are approaching," said a dealer with a private-run bullion importing bank.

Gold demand is likely to gain pace and will peak with Diwali and Dhanteras festivals slated later in the month. Weddings also take place during this period.

Slowing Global Economy Concerns

But the concerns about a slowing global economy still hang over the market.

Asia’s economies are prone to near-term risks posed by Europe’s debt crisis and a US slowdown, the International Monetary Fund has warned.

Gold, typically seen as a safe haven during times of economic and political turmoil, has not behaved like one recently. Instead it has moved in tandem with riskier assets such as equities, as investors sometimes have to sell off profitable gold positions to cover losses elsewhere.

“Fundamentals have been more pertinent to bullish gold, but positioning of funds in market turbulence means that gold is not going to roar back any time soon," said a Singapore-based trader.

The failure to break above $1,700 has prompted some selling, he added.

Physical supply still tight

Buying interest in the physical market eased as spot gold prices rose more than 2% so far this week, dealers said.

“We saw some light selling yesterday evening," said a Singapore-based dealer. “The supply is still tight, and we need the market to sell back to bring premiums down."

Gold premiums in Singapore were about $2 an ounce above spot prices, she said.

Poon of Heraeus in Hong Kong expected the supply tightness over the past few weeks to ease, as more shipments arrive in the bullion trading hub.

Physical buyers are eyeing $1,650 as an attractive level to enter the market, he said.

Other precious metals also held steady. Spot platinum was little changed at $1,544.74 an ounce, after three days of consecutive gains.