A strong rupee has kick-started gold buying in India, the world’s largest consumer, despite prices inching closer to the $466 mark for 10 grams. Traders also stocked up on the yellow metal ahead of next week’s spring festival, Gudhi Padwa.
With the country’s central bank, the Reserve Bank of India widely expected to continue its rate tightening cycle and raise policy rates by a quarter of a percent on March 17, traders are gearing up for a tough road ahead.
“If it does hike rates, it will be for the eighth time in about a year, amidst strong growth momentum in the country and in a bid to tame inflation,,” said bullion retailer Bhaidas Shah.
He added that gold demand in the country had improved the past week slightly on the back of a stronger rupee. Dealers are expecting that more falls could trigger further buying as people expect the yellow metal to soar.
“Most consumers come in saying they expect gold to extend beyond $1,410 an ounce very soon given the conditions in Japan. A strong rupee is also prompting physical traders to stock for the wedding season ahead,” said currency and bullion dealer Sevantilal Mehta.
The Indian rupee has witnessed slight appreciation over the past ten days against the US dollar. Market indications suggest that the Indian currency is expected to be valued lower against the US dollar in the near and medium term due to political risks and high inflation.
In a research note, the Standard Charted Bank has said that the Indian rupee will not see sustained appreciation against the US dollar. Standard Chartered expects the US dollar against Indian rupee exchange to be 46.2 by the end of the first half of 2011, from the earlier projection of 45.8.
In the near term, the research note said, positioning and neutral forex valuations may continue to pressure the rupee.
All of this might not be sweet music to gold traders, but India’s gold-for-oil plan suggests a firmer price in the immediate term. The Indian government is considering settling payments to Iran with gold in a bid to ensure steady crude oil supplies from Iran. Most traders are of the opinion that the gold price is bound to remain firm.
India’s crude oil imports from Iran had come to a halt after the Reserve Bank of India declared that a regional clearinghouse that involved the Iranian central bank could no longer be used to settle oil and gas transactions between the two countries.
India imports 80% of the 184 million tonne of crude oil it refines every year. Iran accounts for 16% of these purchases. Officials have said that India could settle crude oil import transactions using gold in the short term, even as efforts continue to resolve the deadlock.