Tuesday August 14, 02:49 AM
Got that subprime sinking feeling? Reach for the gold lifeline
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By Varun Jaitly
Indian investors could join the global gold rush to hedge against the turmoil in stock exchanges. Helping them staunch the blood on the bourses, investors the world over are reallocating their portfolio in favour of commodity markets, with institutions buying gold as a safe-haven investment instrument. Subprimes have left Indian stocks scathed, with foreign institutional investors pulling out money from the markets here to counter losses in the US. This has put pressure on the rupee, which is expected to weaken against the dollar, according to analysts. "With the rupee weakening and gold price increasing due to safe-haven investing, an Indian participant may end up paying dearly for the commodity, because Indian prices are set on a conversion of rupee-dollar parity," said Mohan Natarjan, director, Kotak Commodity Services Ltd. "We have already seen a 10-15% portfolio reallocation in favour of commodity markets with institutions buying gold as a safe-haven investment instrument on the back of the sub-prime slowdown in equity markets," Eluned Jones, former specifications officer at Chicago Board of Trade, told FE. COMEX gold December futures closed sharply higher, up $8.8 an ounce at $681.80 an ounce, over the weekend on safe-haven buying. The trend may be temporary, however, as gold would see resistance at $687-691 an ounce and be supported at $670 an ounce for the week with European central banks selling the commodity, offsetting the demand pull, and providing an opportunity to book gains in the future. "Support levels could come down to $660-661 in a week's time, which would be a good time to buy. Traditionally, gold is expensive during this season due to festive demand, but with European banks selling reserves, there is bearish pressure on it. Gold would, however, go up to $720-$750 an ounce once $700 is breached, which could happen with the dollar weakening once the full impact of sub-primes is felt," said Harmit Virvadia, research analyst, Angel Broking.
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