Indian Rupee / Equity Indexes continue moving higher. Getting Long Gold.

Gold is likely to retain its investment sheen overseas this year but a strong rupee is expected to keep it well under Rs 10,000 per 10 grams in the local market, bankers and analysts said on Friday.

A poll of 13 banks and brokerages showed a median price of Rs 9,210 for gold by the end of December and an average price of Rs 8,950 for 2007.

"Worldwide gold still continues to be seen as an investment and as a portfolio diversifier," said Rajan Venkatesh, managing director - India Bullion at ScotiaMocatta.

"The Chinese are looking at whether they can divest their dollar assets... there is a worrisome factor over the US economy," he said stating factors that are supporting gold.

A weaker dollar, as the US faces sluggish economic growth, means gold gains in value as investors switch to the commodity in search of better returns.

In the local market, though, gold is likely to be softened by a stronger rupee against the dollar, keeping prices in the Rs 9,000 terrain, bankers and analysts said.

"At the end of the year, gold could head towards $680-$700 an ounce, but over here, the impact won't be that much," said a senior dealer in UTI Bank Ltd.

The rupee has appreciated by nearly 9 per cent against the dollar from January, making the import-driven yellow metal cheaper for Indians.

On Friday, August gold on the Multi Commodity Exchange of India Ltd was at Rs 8,561, after touching its lowest level this year on Thursday at Rs 8,552.

A similar poll in April had seen the year-end prices for gold at Rs 9,920, while the January one had put it higher at Rs 10,350.

"People were expecting the US to lower interest rates, but that did not happen," said a senior dealer at Kotak Mahindra Bank Ltd. "The second surprise was the rupee's appreciation."

Going ahead, the rupee would be closely watched for its play on gold, analysts and bankers said, but opinions on its outlook were mixed.

"By the end of 2007, we are probably headed towards Rs 38 to a dollar," said Kishore Narne, vice president at Anand Rathi Commodities.
Gold and silver rose in New York after a decline in the value of the dollar boosted the appeal of precious metals as alternative investments.
The sensex continues its inexorable run and scales new peaks. Seven months after it went past Point 14000, the bellwether index rapelled up to 15000 — but then slid off the perch and remained tantalisingly short of that historic level.

The climb to another dizzy peak began around noon after a pretty skittish start to the day’s trading. After opening at 14843.43, it hit a high of 15007.22 as software stocks started to sizzle just before the start of another earnings season. The index, however, failed to sustain the level and ended the day off the record highs at 14964.12, a net gain of 102.23 points or 0.69 per cent over yesterday's close of 14861.89.

The new peak was scaled after seven months and 144 trading sessions and reflected the growing confidence that local and overseas investors have in the Indian growth story with worries about inflation and interest rates starting to recede.

But there are a couple of things that are odd about this rally: first, it isn’t broad-based enough with only half of the index constituents rallying since it scaled 14000 last December. The other 15 stocks have actually dipped since then and have under-performed the sensex.

Second, it isn’t usual to see the index rally bang in the middle of a monsoon when business is usually slow. In fact, the market tends to dip in May and then start to rally in early September before the festive season begins. The last time that the market rallied during a monsoon was more than two years ago when the sensex scaled 7000 on June 20, 2005.

This is also the longest interval between two peaks — all of seven months. Barring the transit from 12000-13000 which took a period of six months, most of the other 1000-point rallies have taken between one and three months. Analysts said this rally was built on strong liquidity flows.

“Globally, the asset allocation is changing. It is moving from developed markets to Asian markets, excluding Japan. India is one of the major beneficiaries,” said Dhiraj Sachdev, vice-president of HSBC Asset Management.

Brokers say the strong growth of the Indian economy and comfortable inflation number, which has lowered the threat of interest rate hikes, are the major factors that have attracted investors even though there have been some worries about the high valuations of Indian stocks.

“It’s not the time that one should uncork the bottle of champagne. If we analyse, it can be seen that the rally this time around is not broad-based. Only a few stocks have gained and many have been laggards,” said V.K. Sharma, head of research at Anagram Stock Broking.

Brokers say while Reliance Industries, the State Bank of India, Larsen & Toubro, Bharti Airtel and ICICI Bank have appreciated in the current 1000-point rally, many others like Infosys, Tata Consultancy Services and ITC have seen their stocks wilt.

With the results season kicking off next week, it’s clear that the stream of numbers will decide which way the sensex will head in the days ahead.

Infosys is set to announce its first-quarter results on July 11 and brokers warn that if the Bangalore-based company reports numbers or issues a guidance that is below expectations, there could be a correction.

Given such an outlook, experts say retail investors should take stock specific decisions. “Just because 15,000 has been attained, the investor should not rush in. He must analyst each case individually and then decide whether to invest or not,” Arun Kejriwal, director, Kejriwal Research and Investment Services said.

Sachdev was referring to the continued support lent by FIIs. Figures indicate that the FIIs pumped in more than Rs 7,400 crore into equities in the five days between June 29 and July 5.

Sentiment has turned against the information technology companies like Infosy, Wipro and TCS due to the appreciation of the rupee, which many reckon will crimp their profit margins.

Gold generally moves in the opposite direction of the U.S. dollar, which fell against the euro even after a report showed more jobs were created last month than forecast. Before today, gold had gained 2 percent this year while the dollar had dropped 3 percent against the euro.

``Gold's inverse relationship to the dollar is very strong,'' said Frank Lesh, trader at FuturePath Trading LLC in Chicago.

Gold futures for August delivery rose $6.40, or 1 percent, to $657 an ounce at 11:35 a.m. on the Comex division of the New York Mercantile Exchange. The metal is up 0.9 percent for the week.

Silver futures for September delivery rose 24 cents, or 1.9 percent, to $12.82 an ounce on the Comex. Before today, the price had declined 2.7 percent this year. Silver was up 2.9 percent for the week.

Employers added 132,000 workers to payrolls last month, the U.S. Labor Department said. Economists projected employment would rise by 125,000, according to the median of forecasts in a Bloomberg survey. The increase followed a 190,000 gain in May that was larger than previously reported.

Gold also gained on higher oil prices. Some investors buy precious metals when energy costs rise to guard against inflation. Oil futures rose as much as 1.6 percent today to $72.94 a barrel, heading for fourth straight weekly gain.

Gold, Crude Links

The price of gold has more than doubled in the past six years as the price of crude has almost quadrupled, reaching a record $78.40 a barrel last July.

``We remain positive on gold based on a mix of supply and demand and macro and monetary catalysts,'' John Hill, an analyst at Citigroup in San Francisco, said today in a note to investors. ``The drivers that have lifted gold by $50 to $150 an ounce per year remain firmly in place and we expect gold to work much, much higher over time in what has to be one of the simplest, most obvious calls in the capital markets.''

Gold will average $700 in the second half of this year and $750 in 2008, Hill said.

Still, some investors remain sidelined.

``Gold should be doing better in the face of the weak dollar and $72 oil,'' William O'Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey, said in a report today. ``It seems that many analysts like gold long term, but the near term action continues lackluster.''

But some bankers said the central bank may intervene to keep the rupee steady at current levels to protect export earnings. Physical buying may surge this year as prices forecast seem attractive, poll participants said.

"We are expecting demand to be strong in the festival season that begins in the middle of August," said Scotia's Venkatesh.

Buyers are likely to see prices in the light of India's all time high of Rs 10,715 in May last year, participants said.
Gold and silver rose in New York after a decline in the value of the dollar boosted the appeal of precious metals as alternative investments.

Gold generally moves in the opposite direction of the U.S. dollar, which fell against the euro even after a report showed more jobs were created last month than forecast. Before today, gold had gained 2 percent this year while the dollar had dropped 3 percent against the euro.

``Gold's inverse relationship to the dollar is very strong,'' said Frank Lesh, trader at FuturePath Trading LLC in Chicago.

Gold futures for August delivery rose $6.40, or 1 percent, to $657 an ounce at 11:35 a.m. on the Comex division of the New York Mercantile Exchange. The metal is up 0.9 percent for the week.

Silver futures for September delivery rose 24 cents, or 1.9 percent, to $12.82 an ounce on the Comex. Before today, the price had declined 2.7 percent this year. Silver was up 2.9 percent for the week.

Employers added 132,000 workers to payrolls last month, the U.S. Labor Department said. Economists projected employment would rise by 125,000, according to the median of forecasts in a Bloomberg survey. The increase followed a 190,000 gain in May that was larger than previously reported.

Gold also gained on higher oil prices. Some investors buy precious metals when energy costs rise to guard against inflation. Oil futures rose as much as 1.6 percent today to $72.94 a barrel, heading for fourth straight weekly gain.

Gold, Crude Links

The price of gold has more than doubled in the past six years as the price of crude has almost quadrupled, reaching a record $78.40 a barrel last July.

``We remain positive on gold based on a mix of supply and demand and macro and monetary catalysts,'' John Hill, an analyst at Citigroup in San Francisco, said today in a note to investors. ``The drivers that have lifted gold by $50 to $150 an ounce per year remain firmly in place and we expect gold to work much, much higher over time in what has to be one of the simplest, most obvious calls in the capital markets.''

Gold will average $700 in the second half of this year and $750 in 2008, Hill said.

Still, some investors remain sidelined.

``Gold should be doing better in the face of the weak dollar and $72 oil,'' William O'Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey, said in a report today. ``It seems that many analysts like gold long term, but the near term action continues lackluster.''

Gold and silver rose in New York after a decline in the value of the dollar boosted the appeal of precious metals as alternative investments.

Gold generally moves in the opposite direction of the U.S. dollar, which fell against the euro even after a report showed more jobs were created last month than forecast. Before today, gold had gained 2 percent this year while the dollar had dropped 3 percent against the euro.

``Gold's inverse relationship to the dollar is very strong,'' said Frank Lesh, trader at FuturePath Trading LLC in Chicago.

Gold futures for August delivery rose $6.40, or 1 percent, to $657 an ounce at 11:35 a.m. on the Comex division of the New York Mercantile Exchange. The metal is up 0.9 percent for the week.

Silver futures for September delivery rose 24 cents, or 1.9 percent, to $12.82 an ounce on the Comex. Before today, the price had declined 2.7 percent this year. Silver was up 2.9 percent for the week.

Employers added 132,000 workers to payrolls last month, the U.S. Labor Department said. Economists projected employment would rise by 125,000, according to the median of forecasts in a Bloomberg survey. The increase followed a 190,000 gain in May that was larger than previously reported.

Gold also gained on higher oil prices. Some investors buy precious metals when energy costs rise to guard against inflation. Oil futures rose as much as 1.6 percent today to $72.94 a barrel, heading for fourth straight weekly gain.