Bullion burns red hot as prices hit new peaks

Mumbai, March 30 | Updated: Mar 31 2006, 05:30am hrs
Domestic bullion prices scaled new records in the country after gold prices in London rose to the highest since January 1981 and silver touching the peak in 23 years, all on a demand from investors seeking better returns than bonds or equities as the dollar weakened.

Standard gold hit a new high of Rs 8,380 per 10 grams while the corresponding figure for silver was Rs 16,400 per kilogram. Globally, prices of silver rose 17% this month in anticipation of approval for the first exchange-traded fund for the precious metal. Dealers said the firmness in gold prices on Thursday was largely due to the strength in silver, which spilled on to the yellow metal. The rally in overseas silver prices is mainly driven by the news that the US Securities Exchange Commission has given partial approval to Barclays to launch a silver exchange traded fund, dealers said. The ETF will need to be backed by silver inventories, which will hike demand and lead to supply worries, a Mumbai-based dealer said. Overseas silver prices, according to dealers, have risen by almost 8% since US SEC announced the approval for ETF.

The slightly weaker USD/EUR, firm oil prices, ongoing geopolitical uncertainties -- and the potential for it to drag on -- also created a positive environment for gold. "Perhaps, the simplest explanation is after almost two months of consolidation, the market has placed itself in a good position to break on the upside, with the buying interest on any price weakness, reductions in fund length and bullish news (last week) of Bundesbank not intending to sell its gold in the current year of the gold agreement, all constructive for sentiments," Ingrid Sternby, analyst at Barclays Capital, stated in her report.

"Exchange-traded funds provide easy access to hedging against the weaker dollar,'' Friedrich Kernstock, an analyst at Kernco Metal Trading GmbH in Vienna, told Bloomberg. "The whole precious metal complex is going up, with silver leading the pack." Gold for immediate delivery rose as much as $6.94, or 1.2%, to $580.54 an ounce, the highest since January 1981. It traded at $578.85 as of 11:42 a.m. in London.