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Rising Re reins in gold

by praveen
September 29th, 2007

Rupee appreciation is helping the Indian consumer. While gold prices have touched the roof in the global markets, the domestic prices for precious yellow metal remained at the same level with Indian currency gaining strength.

As dollar continues to weaken against other currencies to weaken against other currencies, gold prices have spurted to cross 28-year-high of $750 perounce. However, in the domestic market the price remained around Rs 9,500 per 10 gram. On Friday, it closed at Rs 9,595 per 10 gram.

The Indian currency has appreciated by over 10% in the last one year against dollar. If this was not the case, the gold would have been quoted around Rs 10,500 per ten gram.

The price of gold is normally fixed in dollar-term. But as the US currency weakened against euro, yen and rupee, rise in prices in these currency are relatively smaller than dollar. This drove the demand of the yellow metal in international markets. Americans are also buying gold to hedge against dollar depreciation.

The investment in gold has given a return of 7% in rupee-term in last one month. Returns in the last three months, six months and 12 months are 9.4%, 1.8% and 7.8% respectively. But, in dollar-term, the yellow metal has has appreciated 30.5% in alst one year. In other currencies, return is on the lower side because of their appreciation against dollar. Return in euro on gold investment in last one year is 16%, in pound 14.8% and in yen 26.1%.

DSP Merrill Lynch gold fund, which invested in equities of global companies, that operate in gold, has appreciated by over 25% in rupee term in the last one month, since it got listed on the stock exchange. Executive V-P at DSP Merrill Lynch Fund Manager Anup Maheshwari said the bull run of yellow metal will continue for some time .

He said gold had crossed $750 per ounce in 1979 and if it is adjusted for inflation since then, the present price of the yellow metal should have been over $1,600 per ounce. Maheshwari said that as US economy has started showing weakness, the US economy has started showing weakness, the US Fed would resort to further rate cut.

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