Diwali bonus: Spot gold at $1,720

Spot gold prices shot up by more than 5.2 per cent in two days as Eurozone officials dragged their feet over a resolution to the debt crisis while the US faces renewed inflation concerns.

Spot gold smashed through three critical resistance levels ($1,665, $1,685, and $1,705), and rose to $1,720 per ounce this morning at around 10.00am UAE time (6.00am GMT), $85 above the $1,635/oz that the yellow metal closed on October 23, 2011.

With today (Wednesday) being the Indian festival of Diwali, a traditional gold-buying period for Indians, the world’s most avid buyers of the yellow metal, traders in the UAE were seen doing brisk business last night and this morning, with 24ct gold currently retailing at Dh205 per gram in Dubai, up Dh7 per gram form last evening’s Dh198 per gram.

A meeting of EU finance ministers was cancelled at the 11th hour last evening, raising serious doubts about the major EU economies’ earnestness to resolve the issue, and leading to gold’s biggest rally in a month. 

At the same time, a third round of quantitative easing (QE3) may be undertaken sooner than later in the US, with the Federal Reserve Vice-Chairman hinting recently that another bout of large-scale securities purchases may become warranted to boost the economy.

Analysts believe that these factors, coupled with physical buying being witnessed due to Diwali, may propel gold closer to its all-time high of $1,920.30 per ounce made on September 6 earlier last month.

Helping the gold rally once again is the weakening greenback, with the US dollar index declining more than 4.2 per cent from 79.57 on October 3 to today’s 76.17 against a basket of global currencies.

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