Tuesday, October 14, 2008

Gold soars at weak rupees expense, hits all time high in domestic market

Plan to buy gold ornaments for Tihar. Well, put it in on hold, pronto. The precious yellow metal has become virtually untouchable, thanks to escalating price.
The domestic market on Monday experienced an all-time high as far as the cost of gold is concerned. The market opened at Rs 21,860 per 10 gramme (Rs 25,500 per tola), breaking all previous records.
“This is the highest price of gold in the domestic market. The escalation can be attributed to the ongoing financial crisis in the US,” said Tej Ratna Shakya, president, Nepal Gold and Silver Dealer’s Association (NEGOSIDA).
However, the key reason is the weak rupee against the dollar. The strong dollar against the rupee — a dollar cost over Rs 77 on Monday — and the current global financial meltdown have jacked up the price of the gold in the domestic market. Though the domestic market reacts according to the international price of gold, the price today in the global market is at $856 per ounce, much lesser than in July when it was over $1000.
Incidentally, on July 16, gold had hit its previous high — Rs 25,450 per tola (11.664 gramme), due to record high price in the international market that was over $1000 per ounce.
As if the bear run in the equity markets is not bad enough, the free fall of currencies has only fuelled the worldwide crisis.“The global share market is in the doldrums. No wonder, investors are seeking a cushion in gold,” Shakya added. Crude oil price dropped to $72.67 per barrel — a new low this year. But, it has had little impact on gold.
“The plunge in crude oil price has left gold untouched due to the uncertainty in the global market,” Shakya added. Normally falling crude price brings the gold price down in the international market.
The panic in international banking coupled with instability on credit and foreign exchange fronts has also contributed to it.
The rising price has perturbed the customers. In fact, the daily transaction of gold —estimated above 15 kg last Dashain — has decreased by a whopping 35 per cent this year. “We transacted only 10 kg of gold per day during Dashain. It may drop even more during Tihar,” said the president, NEGOSIDA.

Bullion defies global meltdown
KATHMANDU: As global confidence wanes, will gold be pulled down with other assets? Experts believe once the de-leveraging hemorrhage has abated, investment funds moving into gold will take the reins. Gold will retain value when other assets won’t. A huge number of investors will shift from other markets to it, taking its price much higher.
With money being issued in seeming trillions, gold stands head and shoulders above the rest. It is a limited edition item. It can be traded anywhere in the world. It doesn’t rely on government support, handouts or promises of payment. The gold market is about to enter the final stage of its evolution. This stage springs from failing confidence in paper money, currently as bad as any pre-war situation and heads back into the investment world as an important component of responsible portfolios. If governments can accede to the disciplines that gold imposes on them, they will also start buying gold.
But this is the hardest leap for them because they have been fighting gold off from being relevant to the money world and promoting paper money for nearly 40 years since US president Nixon closed the gold window in 1971. Once they endorse gold by buying it, there will be a flood of funds looking for it. - Agencies

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