Rupee Extends Gains As Gold Price Zooms

Mumbai, May 20: | Updated: May 21 2003, 05:30am hrs
The rupee extended its gains on persistent dollar inflows on Tuesday, while gold zoomed following a steep rise in international prices. Yet, demand for the precious metal was highly restricted.

The rupee closed at 46.90/91 per dollar while forward premia continued their fall amid receiving pressure. The rupee opened the day at 46.975/985 from its previous close of 46.99/47.00 and continued its upsurge. On Monday, the rupee breached the sentimental 47-mark against the dollar and closed at 46.99/47.00.

On Tuesday, the one-year annualised forward premia closed at 0.47 per cent with the six-month annualised premium closing at 0.35 per cent as exporters sold their forward dollars. With this, the possibility that the short-term premia trading at a discounted price has now become quite certain, bank treasury heads and market players said. Market players are expecting the rupee to touch 46.75 by the end of June.

On the other hand, gold buying in the domestic market dropped considerably with a sharp rise in prices.

Gold prices are fast moving towards their near six-year highs recorded in early February this year, say traders.

On Tuesday, in Mumbai, gold was quoted at Rs 5,725-5,750 per 10 gms, up Rs 120 from its previous close of Rs 5,600-5,605. Tuesdays prices were just Rs 250 away from the six-year high of Rs 6,000 recorded on February 5. This reflected the trend in international markets.

In London, gold was fixed at $367-$368 per troy oz, up almost $10 from the previous close and was said to be at four-month high. On February 5, international gold prices had perched at $380, which were said to be at a near-six year high.

The buying of gold has shrunk this year during the peak season the marriage season, which usually peaks during April and May every year. Because of the high prices this year, retail gold buyers are opting to recycle their old gold instead of buying new gold. This has severely restricted the gold demand this year.

In the international market, the trend is towards shifting investible funds from currencies and equities to gold, which is the main reason for the steep rise in gold prices. In the domestic market, there is hardly any buying at such high levels. Even imports have shrunk considerably.

Says an executive from a leading private sector bank : No one is buying gold at these prices and actual demand is barely 10-15 per cent from what it was early last week.

Speculators, who had expected gold prices to soften and had sold short the metal, had to rush to cover their short positions, leading to higher prices in the domestic market, sources said.