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Why gold is falling despite full-on festive demand?


Why gold is falling despite full-on festive demand?
The most precious metal gold again seems to be losing its so-called 'safe-haven' title. Gold prices slipped fourth straight day on Thursday and it has fallen more than Rs 700 since the beginning of this week.

On MCX, the most-active gold futures for December delivery, opened low at Rs 26,401 per 10 gram and fell sharply by Rs 300 to Rs 26,103 per 10 grams in the initial session of the trade.


And, the metal for February delivery also fell lowest by Rs 250 to Rs 26,400 per 10 grams after opening at Rs 26,650 per 10 grams.

Domestic prices also fell, where 24 carat gold was seen at Rs 26,520 per 10 grams and 22 carat gold was at Rs 24,800 per 10 grams.

This comes with a good news for Indian consumers as the most awaited festivals 'Dhanteras' and 'Deepavali', are just couple of days away from now, which is the most auspicious time for Hindus to buy gold. Physical buying seems to be full active as consumers are buying gold out of exuberance ahead of their religious festival.

Despite strong demand, gold has been losing out in terms of prices. Why?

Indian gold prices are falling in line with the overseas prices. Though demand is strong in India, but there appears to be a sign of stalemate in the outlook of global economies.

Broadly, investors buy gold to hedge against inflation. But uncertainties about the Eurozone's recovery is rising ahead of European summit as the leaders of Germany and France are still on odds over the Europe rescue plan.

Standard & Poor's, the rating agency also cut Slovenia's credit ratings, which raised concerns among the investors.


The Euro fell against the basket of currencies on this concern, making dollar more attractive to bet.

With the rising dollar, it becomes a big-ticket for the traders to deal with this precious metal.

Globally investors are bearish about the yellow metal and preferred moving out of gold rally as the situation over the Europe and US appears grim.

Analysts said that gold which was used as a tool to hedge against economic turmoil has been losing its safe-haven tag.

Story first published: Thursday, October 20, 2011, 12:03 [IST]
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