By Prijath Babu

Gold futures at Indian Commodity market has been on extended consolidation phase between 29500-28590 (Feb Contract) from 9^th November 2011 onwards. Currently quoted near 28910 in February kilo gold contract. International spot gold traded near $1663 per troy ounce with approximately 3 percent downside swing for the week.  Recent history of ascension of gold states that gold is one commodity where investor prefers as safe haven on troubled economy. When crises are still alive why the counter is facing such an extended consolidation. One possible reason might be strengthening of dollar index against its peer competitors. Dollar index had appreciated from 78.33 to 79.57 from November 14 to December 13 periods. Appreciation of dollar will reduce the safe haven appeal of gold. As we all know that dollar is considered as an international currency. SPDR the world largest gold backed exchange trade fund, fell by 0.605 tonnes and total holding of gold is reported at 1294.79 tonnes as on December 12. However comparing it with the last one month’s data from November 14 onwards holding has been increased by 26.52 tonnes from 1268.97 tonnes to 1268.27 tonnes.

From Indian scenario appreciation of dollar against rupee will creates hurdles to importers in India, which is having the recognition of highest jewellery consumption in the world. Weak rupee can increase the cost of gold procurement.  According to Bloomberg, gold imports to India decline by 16 percent comparing with the imports in 2010. However commerce ministry is considering freeing the import of gold ore in India can add support against the current negative sentiments. China is continuing it gold buying in brisk pace. As quoted in Bloomberg china imported more than 300 tonnes for all of 2010.

The most priced question to ponder is that whether the European crises are helping the dollar more than gold. At present the answer is yes from logical conclusion. From rupee perspective dollar continued to strengthen due to dollar payments by oil companies, rising current account deficit and lack of capital inflows. Current depreciation may lure Asian physical buyers but their cautious stance might be a concern. From technical point of view beak above 29500 levels can only ignite another rally in the counter. However due to consolidation, support range from 28700 to 28590 acts as a cushion for bargain hunters to devise their strategy in buying.

The author is a market  expert and can be contacted [email protected]