Gold prices may fall further on unwinding funds

Gold prices are expected to decline in line with crude oil, which fell below $ 91, and a correction in dollar prices, a top industry official said.

"Gold prices will see a correction following unwinding of position by funds internationally in futures and OTC (over the counter) market," said, B N Vaidya Associates' Chief Bhargav Vaidya..

"Wholesale gold prices will fall below Rs 10,000 and retail buying will pick up only after January 14 (Sankranti), considered the beginning of the auspicious period," Vaidya said.

Standard gold (99.50 purity) per 10 grams was quoted at Rs 10,095 and pure gold (99.50 purity) per 10 grams quoted at Rs 10,145 in the Mumbai bullion market on Saturday.

Gold climbed to the highest level in 27 years earlier this month, driven mainly by oil's ascent towards the USD 100 level and steep declines in the US dollar. But with these trends stalling or in reverse, at least temporarily, investors have shifted funds out of the safe-haven metals in the international market.

"The falling crude oil prices and a strengthening dollar is causing pressure on gold prices," Kotak Commodity Services' Analyst Raghavan Sundararajan said in the company's research report.

Though de-hedging has fallen to its lowest level since 1992, the pace of further de-hedging is expected to be slow, thus also indicating lower prices in gold.

In the Indian markets, however, a weakening rupee could limit the downside in prices, Sundararajan said.

Despite the recent correction in gold prices, physical buying of the yellow metal is not picking up, local bullion dealer Amit Zaveri said.