Gold price to continue upward march on safe haven buying
San Francisco (Mar 5) Bullion prices are likely to gain further for short term on weakening dollar and rising demand from consumers and stockists amid concerns of delay in next round of interest rate hike by the US Federal Reserve.
Gold hit highest in 22 months on Saturday at Zaveri Bazaar despite local jewellers continued their strike on the fourth straight day in protest against 1% excise duty levy by the Finance Minister in the Union Budget 2016-17.
Gold on Friday closed at Rs 29,300 per 10g, a weekly gain of a marginal 0.76%.
The yellow metal in local markets gained by over 17% so far this calendar year following similar move in the global markets. Gold price hit the highest in 13 months in the global markets on investors betting big on returns in short term on turbulent equity markets. The yellow metal is considered to be the safest bet in terms of returns until the US bond market reverses with lucrative returns.
After hitting a high of $1,274 an oz on Friday, gold bounced back on profit booking to settle at $1,259.5 an oz on London Metal Exchange witnessing a near 19% returns so far this calendar year.
"Basically, dollar weakness supported gold's upward move. But fundamentals have changed of late. The US Fed data presented on Friday was strong enough to warrant profit booking in gold. But, lots of reports keep estimating that unless bond market does not start moving up, gold would not go down.
"Conventional wisdom says gold goes down when bond market moves up. But there has been lots of inflows which indicate the fall in equity market has not turned around to its full potential. This means, the fear continues to remain. As long as fear continues, gold market would get supported. So, gold’s tasting level of $1,300 an oz looks a possibility with $1,230 an oz a good support level," said Gnanasekar Thiagarajan, Director, Commtrendz Research.
On the comex division of the New York Mercantile Exchange, gold for delivery in April was traded in a broad range between $1,251.30 an oz and $1,280.60 an oz before settling at $1,270.90 an oz, up by over 1% from previous close. After a marginal negative return in 2015, gold recovered between January and February this year to witness the strongest quarter in three decades with over 10% or gain in February alone. Gold bounced back from $1,063.20 on January 4, translating thereby Rs 25015 per 10g.
“Gold prices are likely to continue its positive trend as the metal will draw support from positive trend in SPDR Gold Trust. Also, expectations of additional stimulus measures from China and EU will be supportive for gold. However, comment by Dallas Federal Reserve Bank President Robert Kaplan that he expects solid growth in the US economy this year and does not expect the economy to fall into recession will restrict gain,” said Naveen Mathur, Director (Commodities and currencies), Angel Broking.
Currently, gold is trading higher levels as investor interest remains firm indicated by holdings of SPDR Gold Trust (GLD), the world's largest gold-backed exchange-traded fund, which are on a continuous rising spree. Also, global aggregate fund flows into the asset class came in at $7.9 billion over the month, beating an inflow record set over the worst of the financial crisis in 2008.
Further, safe heaven demand received a boost on worries Britain may exit the European Union after Prime Minister David Cameron's announcement of a June 23 referendum on Britain's membership of the EU.
Further more, European Central Bank is widely expected to slash its deposit rate deeper into negative territory next week. Along with this, mixed movement in crude oil owing to increased likelihood of output freeze in the upcoming meeting on one hand and rise in US crude stockpiles to record highs on the other has also been supportive.
Meanwhile, jewellers’ bodies India Bullion and Jewellers Association (IBJA) and All India Gems and Jewellery Trade Federation (GJF) have urged their members not to call off the ongoing indefinite strike until the government announces a rollback in excise duty formally.
According to IBJA, the Prime Minister Narendra Modi has directed the Finance Minister Arun Jaitley to consider raising 1% import duty from the existing 10% in exchange of 1% excise levy
Meanwhile, in order to attract investors towards paper gold instead of physical metal, the Reserve Bank of India has announced the third round of sovereign gold bond to open subscription on Tuesday for a week.
The RBI has declared the settlement price of Rs 2916 per gram of gold for the third sovereign gold bond scheme, 12%% increase from the second one. Silver price also moved up albeit marginally in both domestic and international markets.