Jewellery demand may temper gold price

The widely held view that the rise in the gold price is primarily related to a weak US dollar should be tempered by the commodity aspects of the metal.

Should, for example, demand from the jewellery industry decline, the gold price will most likely fall.

There are also concerns that the higher price of the metal might depress jewellery demand in India.

Here the Diwali festival and the wedding season both usually result in sales rising at around this time of year.

Some analysts predict that the current “safe haven” demand for gold, combined with high jewellery sales, will come together to push the price beyond $950 before the turn of the year.

The cost of the metal has risen just over 20% in the past two months and a similar increase over the remainder of the year is plausible.

At the current rate of increase, gold could pass $850 an ounce by the end of November and that event would serve as a useful pointer as to whether a $950 year-end price likely.

However, intervention by monetary authorities, or a case of the jitters in the jewellery sector, may prevent such a high.

The factors supporting a continuing rise in the price of gold are also likely to be offset by issues of confidence, as the price breaches psychological resistance levels.

However, since August gold has met such psychological barriers and cruised on.

In addition, predictions of a weak dollar continue, with no indication of a reversal in the currency’s fortunes.