Gold may scale even higher peaks this yr

Mon, Jan 4 06:38 AM

After showing a 25 per cent rise in prices in 2009, gold is all set to rise further this year. The yellow metal enjoyed a strong 2009 as continued investment demand from institutional and retail investors looking to preserve their wealth helped to partially offset the relative weakness in jewellery demand. Many of the drivers of demand and supply behind gold's eight-year bull market still remain in place, analysts say.

Industry pundits forecast standard gold prices to cross Rs 20,000 per 10 grams in 2010. "With inflation set to rise, gold prices are set to scale new levels," said a market source. Gold had hit Rs 18,000 in 2009.

In 2009, the strength of investment demand offset the weakness in jewellery and industrial demand. Total investment demand was up significantly, as investors bought vast amounts of gold coins, gold bars and gold exchange traded funds and other products. "We expect absolute levels of investment demand to remain strong, supported by continued economic and currency uncertainty, especially fears about future inflation, emanating from rapid money supply growth, and dollar weakness. Moreover, despite rapid investment inflows in recent years, allocations to gold remain low as a percentage of total global assets and there is ample scope for further growth," the World Gold Council said.

Ajay Mitra, managing director-India of the World Gold Council, said, "Gold's fundamentals remain promising for a high level of demand in 2010."

Jewellery demand was hit in 2009 by three main factors — the global recession, record high gold prices in the key jewellery buying markets and elevated levels of gold price volatility.

"Small investors tend to follow the moves of big investors while taking decisions to purchase or sell gold. In the second and third quarters, many investors borrowed and sold gold, hoping that gold prices would drop later when they purchase gold to repay bank debts and make a profit," said Bombay Bullion association president Suresh Hundia.

The central banks of China, India and Russia have been the most notable purchasers of gold lately, buying 450 tonnes, 200 tonnes and 120 tonnes respectively.