Gold and Sensex likely to test 20k by fiscal-end

On Monday, the price of gold touched an all-time record of Rs 17,534 for 10 grams on the Indian commodities market. On the same day, the Sensex reached 17,180.18, rising by 158 points.

Both are pushing for 20,000, driven by the same factor: a continued weakness of the dollar. When would the magical figure be breached? The answer from analysts is that it could happen this financial year itself.

To get a feel of how far gold prices have travelled, just compare current prices with the same time last year when on spot markets it were hovering at between Rs 11,700 and Rs 12,000 for 10 grams.

Even naysayers like Motilal Oswal vice-president for commodities Kuljeet Kataria said 20k was a possibility, but just beyond this year. ?Our assessment is that gold prices would test Rs 18,000 in the next few months and then show a huge correction.?

But the World Gold Council in a recent report has pointed out that in the last three years, investment in the BSE-200 index has risen by a compounded annual growth rate of 12.3%, while that in gold has risen by 17.1%. In the last one year, investment in the BSE-200 has slumped by 6.3%, while that in gold has risen by 14.9%.

Equity market analysts like Daljeet Kohli, head of research at Emkay Global Financial Services, are more sanguine about the Sensex. He says following FY10 results in March, the Sensex may hit the 20,000-mark because by then there will be visibility on FY11 numbers.

Driving both markets is the common matrix of a weak greenback. ?Presently, the dollar is weak against the Indian rupee, which is further aiding the rally. But for how long remains a difficult question,? said Anand Rathi director Priti Gupta.

Since August, the rupee has improved from Rs 48 to a dollar. The zero interest rate on the US currency has made it extremely comfortable for overseas investment managers to borrow cheap and invest in emerging markets like India. That is fuelling the surge of cash into the Indian stock market and, in turn, is also further strengthening the rupee. It closed at 46.47 on Monday, a 15 paise rise over the weekend.

Gupta said her assessment is that the rupee would move up further to around Rs 43-44 levels by March, ?which should (automatically) translate into around Rs 18,500 per 10 gram in Indian gold prices?. Geojit Commtrade senior analyst Anand James is also certain that gold prices would rise to Rs 19,000-20,000 per 10 grams in the next five to six months.

At the same time, as Manish Sonthalia, portfolio manager at Motilal Oswal Financial Services, expects the Sensex to touch the 20,000-mark by next April on the back of strong corporate earnings, political stability at the Centre and sustained domestic consumption.