Investors seem to be rushing towards gold as markets flounder. On Tuesday, gold prices on the Multi Commodity Excha-nge touched Rs 18,560/10 grams, the highest ever. However, there may not be too much of an upside in the yellow metal this point on, unless things take a major turn for the worse.
“Sharp depreciation in the Indian rupee against the dollar and the global uncertainty are the major reasons for the rise in gold prices,” says Mr. Kunal Shah, head (commodities research), Nirmal Bang. The dollar, which was trading at Rs 44.34 at the beginning of the month has shot up to Rs 47.4. The dollar is going up as investors exit their exposure to emerging markets. “We wouldn’t be surprised if the dollar reaches a level of Rs 48 against the rupee in the near term,” says Mr. Siddhartha Sanyal, economist, Edelweiss. In the long term, the rupee should have an upward bias against the dollar, he adds. This means a lower price for gold.
That however, may take some time. “Gold prices should remain high till matters are resolved in Europe,” says Mr Shah.