As international gold prices nearing $1300 per ounce, experts in the Indian bullion markets are of the opinion that the current gold-rush is nothing but a bubble that can burst anytime in absence of the physical gold demand, which has been shrinking in recent months owing to exorbitantly high prices.
Gold prices on New York Multi Commodity Exchange (NYMEX) recorded at $1254.40 an ounce after hitting intra-day highs of $1260.40 an ounce. In an interaction with CommodityOnline, Suresh Hundia, President, Bombay Bullion Association (BBA) maintained that this is not the right time to invest in gold as the prices are already reeling at high levels.
There is no demand in India or for that matter in the world for gold jewellery or coins. Reports have suggested that physical demand has been on a slide. We see demand only from ETFs, which are also treading at higher levels, maintained Hundia.
In India, gold prices are hovering at Rs.18866 per 10 grams for August contract on MCX. The front-month gold futures on MCX had struck an all-time high of 19,198 rupees per 10 grams on June 8. According to Hundia this is not a right time to invest in gold.
The prices are at higher end and those holding ETFs can make profit booking and exit at any time in near future leading to a severe downfall in the prices. Therefore, I believe this is not the right time to invest in gold, maintained Hundia adding that in short term gold prices may hover in the range of $1150 - $1300 an ounce before resorting to a fall.
Commenting on the prices, Anand James, Chief Analyst at Geojit Comtrade maintained that this week, trices have opened up similar to last Monday, when we also saw a new life time peak, which has henceforth stayed unconquered. The sharp swing higher from last week's drop to 1224 looks to have some more steam. To this extent, our view this week favours a feeble rise towards the recent peak of 1264.9 and perhaps succeed in minor penetrations of the order 1 or 2 Dollars and then drift lower towards $1233 an ounce (in short term), James maintained.
Further, the slackness in demand is further ascertained as reports indicated that India's gold imports in June may fall further for a third consecutive month. According to Hundia, Imports might be 75% less than the previous year, which is a resultant of the high prices in the international markets. India had imported 29.9 tonnes of gold in June 2009.
The physical gold demand in India however has been falling over the years. Segregating the gold demand history between pre-exchange era and post-exchange era, it was found that gold holding by people was more and physical demand was high compared with the period after the exchanges came into existence.
Speaking on this, Hundia said, Earlier when exchanges did not exist, people bought more gold in physical form. But as exchange traded funds came into existence, the demand for physical gold started reducing and people preferred investing in ETFs rather than buying physical gold and keeping it with them.