Gold premium rises, but it’s shortlived: Analysts

KOLKATA: The premium on gold rose $ 2 per troy ounce on Wednesday amid supply constraints because of bank holidays from Saturday to Tuesday. However, bankers and analysts said that the premium would be short-lived owing to muted demand and that gold prices would fall further in the coming weeks.

Gold prices have fallen 2.1 per cent since April 19 to around Rs 30,900 per 10 grams on Wednesday.

“Demand for gold is weak and therefore the rise in premium is a temporary thing. It will fade away within a day or two,” said Shekhar Bhandari, business head for global transaction (banking and precious metals) at Kotak Mahindra Bank.

Bhandari said that gold prices would fall another 2-3 per cent in the next month and a half. “The intention of North Korea and South Korea to work towards a permanent peace treaty and also an expected hike in Fed rate in June have brought down price of the yellow metal. For whole year, gold will trade in the price band of $ 1,260-$ 1,340 per troy ounce,” he said. Analysts said that investors are also focused on the US non-farm payrolls report for April, due on Friday, which could provide further signs of economic strength.

Inflation is sometimes regarded as a trigger for a rise in gold prices because bullion is seen as a safe haven when price pressures rise, but higher interest rates imposed to fight inflation make the non-yielding metal less attractive.

However, the World Gold Council in its recently released report on gold investment update said that US interest rates do not necessarily influence the behaviour of global consumers of gold jewellery or of technology demand. Nor do they affect the behaviour of investors outside the US for whom local interest rates matter more than US rates, it said. “There is some demand for gold in the market though it is not very robust,” said Mukesh Kothari, director, RiddiSiddhi Bullion.