Gold imports surge to 160 tonnes in March on price drop, duty cut: GJEPC
Gold imports surge to 160 tonnes in March on price drop, duty cut: GJEPC

As global economy opens, gold prices are on a downhill and likely to weaken further if the US Federal Reserve goes for a rate hike in its meeting tomorrow.

Traders and investors are focussed on the outcome of the US Fed meeting on Wednesday. Tapan Patel, Senior Analyst (Commodities), HDFC Securities believes the Fed may not take a wait-and-watch stance till September or December and not want any change to affect the long-term sustainability of the US economy,.

In such a situation, Patel said, it is a good time to buy jewellery, coins, etc and invest in gold. “At the current range, it is a good time to invest in gold for long-term purpose. The view is that gold will remain bullish in the next two years,” he said.

He expects gold prices to hover around Rs 56,000 by December.

Domestic gold and silver prices started weaker on Monday morning, tracking overseas prices. At close of trading session, in the national capital the yellow metal plunged Rs 464 to Rs 47,705 per 10 grams. In the previous session, the precious metal had closed at Rs 48,169 per 10 gram.

Gold prices drop

Gold has seen a brief rally from $1750-1920 without a break. The last trigger was the crisis in Iran and US regarding the nuke deal and rising inflation. Navneet Damani, VP, Commodities Research, Motilal OswalFinancial Services Ltd (MOFSL) said with inflation having been established at 5 percent, it is difficult for US Fed to go on without a rate cut on prolonged basis.

Retail inflation rose to 6.3 percent in May, breaching the RBI's comfort level, on the back of costlier food items, government data showed on Monday. The Consumer Price Index (CPI) based inflation stood at 4.23 percent in April.

“Gold has had a time-bound and a price-bound correction. On Monday, what was witnessed was a technical correction below $1870 and will come to $1830-levels soon, he said.

Dollar rebounds strongly

One of the reasons for the plunge in the gold prices is that the dollar has rebounded strongly. Gold is usually denominated in US dollars. The dollar rose 0.1 percent to hover near a one-week high. When the value of the dollar increases relative to other currencies, the price of gold tends to fall in US dollar terms. The yellow metal extended decline on a firm dollar.

The US economy has reopened and with a large majority of the American population fully vaccinated against COVID-19, authorities are lifting v restrictions on businesses. However, there is subdued demand for gold in India given rising COVID cases, lockdown and restrictions across many states in India. Truncated weddings with limited guests have proved to be a dampener for weddings and consequently the demand for gold has come down. Indian gold demand is likely to slow down in the second quarter (April-June) due to COVID-related restrictions, before rebounding in the second half of 2021, according to the World Gold Council (WGC).

Time to buy, invest in gold

The fall in gold prices is a short-term scenario. Explaining it, Sugandha Sachdeva, Vice president of metals, energy and currency research at Religare Broking Ltd., said that gold prices might witness some profit booking and could slide down further to Rs 47,700 in the next few days. This may lead to renewed buying interest at lower levels, she said. “This is a good time to buy gold and more so when it gets to 47,700 levels. There will be heightened volatility in gold prices as markets look forward to the outcome of June 16 US Fed Monetary Policy for further cues about the monetary policy path of the US Fed,” Sachdeva added.

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