The Hindu Business Line : Rupee's rise against dollar tempers gold

Domestic signals
Rupee has strengthened from Rs 46.55 to a dollar in August to Rs 44.27 currently.
Increasing hedging activities, demand from exchange-traded funds lessen impact of falling Indian offtake.

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Mumbai Jan. 29 Contrary to the usual pattern, volatile and rising gold prices in the world market have had limited impact on domestic prices.

Gold in the country is known to closely track international price trends. As a thumb rule every $1 change in the price of gold internationally, will change the price of gold by Rs 20 in India after factoring in all the conversions.

Why has the domestic market not been rising in line with say London or New York prices? Amongst other reasons, appreciation of the rupee vis-à-vis the dollar in recent weeks has made the market more consumer-friendly.

Strong show

For instance, from Rs 46.55 to a dollar in August, the rupee rose to Rs 45.96 in September, Rs 45.02 in October, and Rs 44.76 in November, Rs 44.36 in December end and is currently trading at Rs 44.27.

Rupee appreciation against the dollar is an impact of a sell off in dollar in the European markets, said a trader at a bank.

As India is a major net importer of the yellow metal, a stronger rupee has tempered the price rise. Gold for immediate delivery was quoted at Rs 9,310 per 10 gm (.999 fineness) on Monday. From a $650/oz early Monday trade, international gold prices (spot) declined to $642/oz on Monday afternoon in the London market.

Additional factor

In the futures market, gold traded between Rs 9,185 and Rs 9,265 on the Multi Commodity Exchange for the February contract.

In May last year, when prices of gold in the international spot markets peaked to $730 an ounce, corresponding prices in India were ruling well above Rs 10,000 in the spot market and at Rs 10,763 in the futures per 10 gm. Against the dollar, the rupee was then quoted between Rs 46 and Rs 47.

In India, an additional factor is the slowdown in physical demand in the country.

At higher price levels, some demand compression is witnessed.

A trader at a bank said, imports too have somewhat slowed down in recent times as importers had stocked up the metal when prices were low between $580 and $600/oz. There has been a definite slow down in imports due to higher price on anecdotal evidence. (No public data available for gold import).

Demand

Demand may pick momentum in domestic market if prices dip by $10-$15, said the trader at a bank. According to the latest CFTC data, there has been a marked increase in the net long positions of speculators across all precious metals especially gold.

Although Indian demand is a major factor in gold price setting, increasing hedging activities and demand from gold exchange-traded funds in the international markets have lessened the impact of Indian demand.

Sharp volatile movements in gold prices were not good for the trade, said Mr Mehul Choksi, Chairman of Gitanjali group, explaining that sharp decline will affect the confidence in the commodity and too higher prices are not sustainable.

Comparatively volatility in gold is not shared by silver. Silver in the international spot markets was quoted at $13.20 on Monday evening. Silver for immediate delivery in Mumbai was at Rs 19,895 (.999 fineness) a kg.

Silver in the futures market traded between Rs 19,628 and Rs 19,920 on Multi Commodity Exchange on Monday at 5.45 p.m.