Buying gold, wait till November

Festival season is round the corner, and if you're thinking about upping your glitter quotient, you might as well hold on to your reins for a quick check.

With gold prices racing close to $500 per troy ounce mark, most analysts are putting in a word of caution before you invest in the yellow metal.

On the New York Mercantile Exchange, the benchmark, Comex gold December futures contract touched a $477.80 peak, before closing at $472.30 on Friday.

This price is indicative of the way gold is moving, and analysts point out that this could either be a third wave rally, which means it has a bit more steam left to go, or a fifth wave rally, which means prices have to take a correction from here.

According to Krishna Nathani, head, research, Indiabullion.Com, if it is a third wave rally, then gold is likely to initially correct to $460 levels, before rising to $480-490 levels. If it is a fifth wave rally then the prices are expected to move downward to $440 levels.

"The market for gold is overheated, with the extreme bullishness in gold, that has sustained the rally. Therefore investors should wait before they take the plunge," he said.

Further, he suggested that for the bullishness to sustain in the long-term a correction has to take place, and prices are likely to pick up only March onwards after the first quarter of 2006.

"$430 levels would be a good bet to purchase gold. These levels are not imminent in the immediate future," he said.

Another view offers that the market is looking at a sudden slide as the long positions on the Comex, are over 2,00,000 that is at record levels, indicating high speculative activity.

At these high levels, if hedge funds begin to book profits, then the decline is expected to be rapid.

Besides, despite the euro rapidly losing ground against the dollar in the past month, falling from 1.25 to 1.195 levels, gold buying has been strong.

This is against the usual inverse trend, indicating that gold is not currently seen as a hedge against inflation.

"Long-term investors should look at short-term trades of two weeks to a month if they would like to make some money in the markets," Nathani pointed out.

Bullion consultant, Bhargava Vaidya also reiterates that while situation could improve over the next six months, the current physical demand is sluggish by 4-5 per cent, despite the festival season, with the prices higher by over 10 per cent.

"The delay can be attributed to the late monsoon, which has subsequently led to a late harvest. The demand will pick up in the next three-weeks, post-November, when the prices are also expected to be lower," Vaidya pointed out.

Bars and coins are considered a better investment option in comparison to jewellery as demand for fabrication has also hit a plateau.