By Shrikant Kuwalekar, edited by Mahul Brahma/NewsWire18

The Reserve Bank of India's decision to buy 200 tn gold from the International Monetary Fund has pushed up gold prices in local as well as global markets despite strong come-back in dollar against the euro, which normally drags down the yellow metal.

However, the rally may not sustain and prices may retreat after the initial euphoria is cooled down, experts said. On MCX, gold futures made a new record high of 16,321 rupees per 10 gm, while COMEX gold rose by $10 an ounce to around $1,065 despite nearly 1% rise in dollar against the euro. "Prices may move up further to $1,070 an ounce or even more in the short term, but may fall again as physical demand for the metal at current prices is virtually nil," said Prithviraj Kothari, director, RiddiSiddhi Bullion said. Prices will move in $985-$1,070 an ounce in the medium term, Kothari said.

Concurring on the view, Haresh Acharya, a prominent bullion importer in Ahmedabad, said the deal would not be able to trigger any rally in bullion prices as there was no consumption demand for gold at these prices. "Although IMF was able to sell half of its planned 403 tn gold sale without disturbing global prices, the uncertainty whether any bulk buyer will be interested to buy the remaining block of 203 tn still overhangs," said Manish Garg, senior analyst at Karvy Comtrade. If IMF were compelled to sell the remaining gold in spot market due to absence of institutional bulk buyer, prices would again start declining after the initial euphoria ceases, Garg said.

Most experts have welcomed the move considering long-to-very-long term outlook for the commodity. However, they were sceptical about the timing of the deal saying it could be a costly affair for the central bank in the medium term. "No central bank in the world bought gold at such a high level. A little wait could have saved millions of dollars for the country," a bullion importer said. This is probably the first off-market deal by central bank in the past nine years to buy gold at near-record prices, the importer said. "The interest rates in the most global economies have already bottomed out and the next move is on the upside only. When it starts moving up gold is bound to see a sharp correction and RBI should have made an entry at that time," said a forex analyst at Multinational Brokerage. If the move is considered as a reserve diversification move, even then once US starts raising interest rates to abate excess liquidity, the dollar would shine and gold would fade, the analyst said.

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