Gold hits six months low on heavy selling
Mumbai-India (Mar 27) Spot gold plunged to trade at a six-month low in India's popular Zaveri Bazaar in Mumbai on Thursday, following heavy selling by investors seeking refuge in other asset classes, including equity.
Investors' risk appetite has been low in bullion on easing geo-political tensions between Russia and Ukraine, and signs of improvement in the United States economy.
Standard gold fell 1.30 per cent to Rs 28,740 per 10 gms, the lowest since August 10, 2013. The yellow metal nosedived 4.45 per cent over the week.
Spot gold in London fell below the psychological barrier of $1300 an ounce, the level widely termed as average cost of gold production and traded at $1293.09 an ounce Thursday afternoon.
In fact, gold fell 3.12 per cent this week alone after US Federal Reserve chairman Janet Yellen announced tapering to continue.
"The fall in precious metal prices can be attributed to the announcements by the Federal Open Market Committee (FOMC) last week. Additionally, investors' risk appetite has shifted from gold to equity as geo-political tensions have eased. The price fall can also be attributed to appreciation in the rupee against the dollar. All these factors have brought premiums in India almost to negligible levels," said Gnanasekar Thiagarajan, Director, Commtrendz Research.
Yellen last week announced that unemployment rate was moving closer to the Federal Reserve's target of 6.5 per cent, which prompted the Fed to go ahead with another round of tapering of its monthly bond purchase programme.
The monthly bond purchases which stood at $85 billion till December 2013, were scaled back by $10 billion each in the last two meetings (i.e. December 2013 and January 2014) and currently stood at $65 billion.
Last week, the Federal Reserve decided to scale back the bond programme by another $10 billion to $55 billion a month. While it was more or less factored in, the positive rounds of economic indicators from the US indicate that the cut-back in stimulus spending will continue throughout the year.
This was evidently seen on the holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, which fell 0.33 per cent to 818.77 tonnes on Tuesday from 821.47 tonnes on Monday.
Although inflation remains much below the Fed's target rate, the unemployment rate is likely to be the trigger for further cuts in stimulus spending.
US Federal Reserve chairperson Janet Yellen also signalled that the Federal funds rate will likely increase from mid 2015, a big change from the last policy meeting.
Meanwhile, global advisory firms have lowered their gold price forecasts. While Goldman Sachs hints gold price will average lower this year at $1050 an ounce, Standard Chartered revised gold price forecasts 8 per cent downwards to $1225 an ounce.
According to CPM Group, gold averaged at $1,409.43 an ounce in 2013, down 15.6 per cent from the average gold price of $1,670.15 in 2012.
This was the first annual average decline for the yellow metal in more than a decade.
"Gold and silver prices are likely to trade lower given declining trend in holdings, strength in the DX along with mixed global market sentiments," said Naveen Mathur, Associate Director, Angel Broking.
The Indian rupee halted its four-day gains today and depreciated by around 0.1 percent today on the back of dollar purchases by the RBI. The currency touched an intra-day low of 60.26 against the dollar.
In the Indian markets, gold prices fell by 0.8 per cent today despite rupee depreciation.
"Appreciation in the rupee against the dollar was also a major factor that contributed to gold's fall in India. Going by ratio, silver has more potential for recovery than gold," said Thiagarajan.
Silver followed suit and recorded a decline of 0.89 per cent to trade at Rs 43,640 a kg on Thursday.
In London, silver fell by 3.46 per cent over the week to $19.63 an ounce. Crude oil, which moves opposite to bullion, moved up marginally by 0.1 per cent $100.30 a barrel on Nymex.
Source: Business-standard
