Gold in Indian rupees opened at a fresh record high of ₹41,987 per 10 gm (including GST), tracking global prices which hit a 6.8-year high intraday on haven buying following renewed tensions between the US and Iran. Gold jewellery chain officials believe that prices will continue to remain elevated in the short run and might lead to an immediate impact on demand because of the sudden spurt in prices.

“Demand could slow down because of the sudden jump in price, but once it stabilises, people will resume buying,” said Aditya Pethe, director of Waman Hari Pethe. “So long as the price doesn’t breach ₹42,000 (10gm) we will by and by see a restoration of demand, thanks to an extended wedding season through March and festivals like Akshaya Tritiya thereafter.”

Indeed, wedding season demand for jewellery tends to be inelastic as pointed out by Titan in its Q3 update to the stock exchanges over the weekend. “The division met its revised expectations for the quarter. While the revenue growth for quarter is 11 per cent, the retail growth was actually much better at 15 per cent (the base quarter, Q3’19, had a large institutional order for gold coins of ~ ₹200 crore),” the company said of its popular jewellery business Tanishq in Q3 FY20.

Similarly, a director of another listed jewellery company said that wedding season demand would ‘hopefully’ witness ‘sustenance’ of demand. The official spoke offrecord being in the silent period ahead of its Q3 results. To be sure, not all market constituents are on the same page about prices remaining elevated. “I think, the situation (US-Iran) will ease in a week or so and the premium attached to haven demand will decline,” said Surendra Mehta, national secretary, India Bullion & Jewellers.

Indeed, option traders on Comex division of US-based CME, the world’s largest derivatives market place, sold numerous call options at the 1575 -strike expiring three weeks from now. The contract open interest (OI) has steadily jumped over the past few sessions as has its price, indicating bullish sentiment.

However, the option traders don’t expect the metal to jump significantly above $1,600 an ounce (31.99 gm) – their breakeven is at around $20 an ounce — for now. If, however, the tension escalates, the option value would rise forcing the traders to cover their short bets, and push the prices higher.

“The $1,600 level is a resistance for now and we’ll have to see if it holds,” said Rajesh Palviya, derivatives head at Axis Securities, which also offers commodity broking services. “The writers at $1575 call will scurry to cover if the uncertainty rises and that will result in a fresh breakout.”





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