Traders get bearish on gold
Mumbai-India (Nov 1) Steep fall in gold prices in the last two days has triggered margin calls as traders turned bearish resulting into a dramatic surge in turnover and open interest of the Multi Commodity Exchange (MCX), India's largest commodity futures trading platform.
While gold prices have fallen nearly 4% last week of which around 3.5 decline was noticed in the last two days. Gold for near month delivery fell to close on Friday at Rs 26135 per 10 gms from Rs 27214 per 10 gms on Monday and Rs 27079 per 10 gms on Wednesday.
The bullion followed the move in the international market where investors dumped bullions to invest in riskier assets including real estate, equities and bonds. After falling to $1163 an oz, gold recovered a bit to settle on Friday at $1173.2 an oz in London as bargain hunters booked the precious metal for profit in future. Therefore, gold recorded a weekly decline of 4.34% from $1226.06 an oz on Monday and 3.20% slump from $1212.06 an oz on Wednesday.
"The steep fall in gold prices have triggered lots of stop losses on the MCX as traders have turned bearish," said Sugandha Sachdeva, Incharge (metals, energy & currency) Research, Religare Securities Ltd.
In a rush to square off open position at the existing price, traders' pushed "sell" orders. Consequently, total turnover of MCX has suddenly sparked to Rs 7933.7 crore from gold contracts on Friday compared with Rs 5115.2 crore on Thursday and significantly lower at Rs 2770.2 crore on Monday.
Similarly, aggregate open position in the gold contracts at the exchange shot up to 11562 lots on Friday compared to 10502 lots on Monday. Aggregate open position steadily moved up in the second fortnight of October from 9941 lots on October 16.
Aggregate trading volumes have trebled last week from 10195 lots on Monday to 30366 lots on Friday.
"With inflation being lower globally, investors have felt no need to consider gold as safe haven," said Sachdeva who forecast gold's next support level at $1120 an oz in the international market and Rs 25,000 per 10 gms on the MCX.
Gold is facing a sell off all around due to the Fed's last week report on growing US economy. The Federal Open Market Committee in its statement on Wednesday said there has been a considerable improvement in outlook for the labour markets since the beginning of asset purchase program. The Committee estimates that there is sufficient underlying strength in the economy to support ongoing progress towards maximum employment in respect to price stability.
However, the central bank is maintaining its existing policy of reinvesting its principal payments from holdings of debt and asset backed securities agencies along with rolling over maturing treasury securities at auction. This has raised hopes for the rise in US interest rates "sooner than expected".
Also, in a completely divergent stance, Bank of Japan has surprised markets by announcing a stimulus package worth $726 billion to support its flagging economy and as consumer inflation cooled off further in the month of September. This has steered a rally in global equities and dollar Index also ticked higher, trading near its four year high.
The move pulled yen down to 111.05 against the dollar and also helped dollar index to surge to 86.57, steadily moving towards record high 86.75 hit early October.
"Gold, therefore, may see the next initial support level of $1145 an oz and then, $1100 an oz thereafter after breaching the first support level," said Gnanasekar Thiagarajan, Director, Commtrendz Research.
Source: BusinessStandard.in
