Gold prices have continued to rise in the past few days on the back of uncertainty because of a weaker rupee and the euro zone crisis and these record levels are testing consumers' appetite for the yellow metal. Gold prices zipped to Rs. 18,750 per 10 gram in Mumbai and to Rs. 19,050 in Delhi on Tuesday but closed on Wednesday at Rs. 18,725 levels in Mumbai.

Bharghav N. Vaidya, former director, Bombay Bullion Association, said that demand in the current marriage season had been poor. “There has been little or no fresh buying and a lot of scrap gold has been coming in.”

Internationally, prices have been high mainly due to the euro zone crisis and to an extent the geopolitical situation between the two Koreas. “In India, the rupee has been weak and the high prices have driven away customers. Rural demand too has been poor and only scrap gold has been coming into the market.”

In spite of the record price, Madhusudhan Daga, bullion analyst and consultant CPM Group, U.S., said that buyers could be found even at high levels provided there was some stability in the prices. “If prices remain stable for even a fortnight, buying would come in.”

He said that gold was today an investment alternative to stock markets and other avenues like realty given the uncertainty prevalent in all markets. “I am still bullish on gold given the paucity of investment alternatives,” he said.

Figures from the World Gold Council (WGC) indicate that gold has given a return of 6.88 per cent in the last one month, 22 per cent in the past year and 208 per cent in the last five years.

Mr. Vaidya felt that a clearer picture would emerge once the monsoon sets in. From the current levels of around Rs. 19,000 per 10 gram, he felt “there could be some cooling off and levels could stabilise around Rs. 17,500-18,000 per 10 gram in a fortnight.”

In its quarterly report, Gold Demand Trends, WGC believes that in the future, there is a considerable potential for growth in the Indian jewellery market given that domestic income levels are on the rise. “Gold is also viewed by Indians as a secure and easily accessible investment by the rural community. Gold also continues to have the added virtue of being an inflation hedge and an allocation to gold is an ideal way to achieve a diversified portfolio due to its slow to negative correlation with other mainstream assets.”

WGC believes that Indian investors may continue to move into gold “as an insurance policy to protect their wealth from the aftermath of the global financial crisis since there are few assets that have the ability to hold their value during extreme conditions.”

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