Bullion falls on Fed's tapering move

Mumbai-India (Dec 21)  Prices of bullion declined three per cent after the US Federal Reserve announced tapering in its bond buying programme on Wednesday.

Analysts believe the Fed’s decision would reduce availability of disposable fund at the hands of investors, resulting in decreasing demand for precious metals.

Gold and silver prices declined 3.6 per cent and 3.4 per cent, respectively, in the international market. Gold fell below the cost of production level of $1,200 an oz on Friday. Silver plunged to $19.32 an oz, slightly above the cost of production of $19 an oz.

In Mumbai’s Zaveri Bazaar, gold and silver prices declined 1.7 per cent and 0.2 per cent respectively to close at Rs 29,800 per 10g and Rs 44,400 a kg, respectively, on Friday. The rupee depreciation against the dollar restricted bullion’s downward move in India.

“Spot gold prices traded on a negative note by around one per cent due to the US bond buying programme. Also, mixed market sentiments along with declining trend in the SPDR gold holdings led to decline in prices. Weakness in the dollar index could not provide respite to the falling prices. In the Indian markets, gold prices fell by 1.3 per cent despite rupee depreciation,” said Reena Rohit, chief manager (non-agri commodities and currencies), Angel Commodities.

Meanwhile, holdings of the largest gold-backed exchange-traded-fund (ETF), New York’s SPDR Gold Trust fell 0.5 per cent on Thursday from Wednesday, while the largest silver-backed ETF, New York's iShares Silver Trust remained unchanged during the same period.

Exchange-traded funds, the most widely recognised type of ETP, back each security issued with physical stocks of a given commodity, creating a product they say is free from counterparty risk.

Spot silver prices slumped around two per cent on Friday, taking cues from the drop in gold and base metals prices. Also, declining trend in iShares silver holdings along with mixed global market sentiments exerted downside pressure. MCX Silver prices slumped by around three per cent touching a low of Rs 43,629 a kg.

A report from Geojit Comtrade, a Kochi-based commodity trading firm, showed that bullion is seen inching up, probably on short covering, following the steep declines. Spot gold was off the six month low it hit earlier on Friday, though it remained under pressure from the Fed’s moves to wind down monetary stimulus. On the MCX, too, precious metals were seen moving up, tracking movements in the market abroad.