Gold in market sentiment

A mixed trend was witnessed in the precious metals market in Mumbai on Tuesday, with silver sliding for the fourth session on lack of buying enquiries from stockists. Gold, however, continued to be steady.

Traders at the Bombay Bullion Association (BBA) said the white metal had plunged rather a lot in the last four sessions, while a stronger dollar dimmed the yellow metal's appeal as an alternative investment.

One of the well-known relationships in currency markets is the inverse relationship between the US dollar and the value of gold. ``Gold is typically used as a hedge against inflation through its intrinsic metal value. As the dollar's exchange value decreases, it takes more dollars to buy gold, increasing the value of gold,'' said Bhadresh Shah of the BBA.

He went on to add that while the dollar's value is at risk of fluctuation through shifts in the monetary policy, gold's value is largely determined by supply and demand, without interference from shifts in monetary and corporate policies.

Like all prices, ``the gold price reflects not only the inherent value of gold, but also the relative strength of the currency in which it is quoted,'' he said adding that there remain many challenges in the coming months, ``as gold prices in the global market are still unstable.''

Bullion trader Samrat Jog is, however, convinced that an upswing is in the offing. He urged speculators to be extra careful when investing in the gold market, as the prices could fluctuate throughout the year.

Noting that global gold prices have decreased in the face of the increasingly stronger greenback, Jog said that unlike last year which saw the price of gold steadily increasing, this year could see a correction.

``Commodity prices have begun to move despite the fragile conditions in the overall macroeconomic environment. This indicates that individual commodity market fundamentals are beginning to assert themselves,'' said Santosh Sevai, an analyst and bullion dealer in a nationalised bank.

Noting that the precious metal was highly volatile at the moment, Sevai said the trend may last till this week, ``before consolidating. Gold prices are likely to correct by Friday this week,'' he said.

Financial services firm Religare Commodities' metals and energy analyst Sreenath Debu said trading sentiments for gold bolstered after it gained in the overseas markets as concerns that the European sovereign-debt crisis may linger.

Gold in international markets, which normally sets a price trend on the domestic front, climbed 0.2% to $1,364.93 an ounce.

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