Gold is back on upward trajectory - gradually nearing its previous record of Rs26,000 plus per 10-gram bar in the domestic market. The yellow metal has been crossing one milestone after another in the recent weeks without showing any sign of peaking out just as yet.
The commodity has been hovering between Rs25,000 - Rs25,500 per 10 gram of late, up 8 percent from 23,400/ 10gm in May, despite the fact that demand is currently sluggish due to Ramadan affect. Historically, gold demand remains relatively damp in and around Ramadan but ramps up during wedding season that typically starts after the holy month.
While current trend in domestic prices have been supported partly by investors looking for alternatives amid a flat stock market and declining return on savings schemes, it is being mainly driven by rising bullion prices in international market.
The commodity just recently spiked above $955-$960 per ounce - a key resistance level it held for most of this year - in global market and there are indications it could rise even more.
With rising fears of rampant inflation in the United States, the price of gold - which moves against the U.S dollar - is estimated to cross its previous peak of $1033/ounce by the end of year 2009.
There are myriad of reasons why global gold prices will increase; and central to all that is the waning of U.S dollar. First, President Obamas stimulus plan along with likely cut in federal funds rate to ensure liquidity in market is seen leading America to unprecedented inflation.
Second, there are concerns that U.S hedge fund investors will buy gold to protect their wealth against inflation amid easing capital & currency markets.
Third, China - the biggest investor in U.S treasury - is also planning to replace dollar with Yuan and Euro to value trade transactions. This is on top if its plans to dump short-term financial assets and buy more long-term corporate ones from the real sector - in line with its much criticised suggestion to reduce reliance on the US dollar as a reserve currency. This means huge selling in U.S treasuries is on cards.
The U.S dollar hit its lowest level of the year against a basket of currencies at the start of this month and there fears that government spending will weaken it further. Keeping these factors in mind, UK leading fund house Schroders says "a gold price of $2,000 an ounce is quite likely" if dollar were to fall in the next 12 months amid worries over U.S inflation.