Gold erases early gains on profit booking

December 2, 2014

Mumbai-India (Dec 2)  After initial support, spot gold slipped in early Tuesday trade after dollar found strength amid concerns of a possible fall in the Russian gross domestic product (GDP).

The Russian rouble hit an all time low against the dollar at 53.89 on Monday as economic sanctions and low oil prices continued to hit its economy, although the Russian currency found support to gain some ground to trade at 51.38 on Tuesday.

Spot gold hit $1204 an oz in late Monday trade, bouncing back from $1146 an oz during the day after reports that the markets will focus on US non-farm payrolls. The European central bank's (ECB) hint on possible quantitative easing in the eurozone also supported the move as physical buying remain robust on low prices.

But, the metal lost ground marginally on profit booking and slipped below the broad-based cost of production level of $1200 an oz.

"Spot gold prices are trading lower today by around 1 per cent at $1,195 an oz in early afternoon trade. Strength in the dollar, coupled with profit booking at higher levels is exerting downside pressure," said Prathamesh Mallya, Senior Research Analyst, Angel Commodities Broking.

Normally, the price impact in the global markets gets reflected in the domestic spot market with a lag of one day. Hence, the Monday's price spurt reported support in physical marker here. In the domestic market, standard gold closed with a gain of 1.15 per cent or Rs 300 to Rs 26500 per 10 gms in Mumbai's popular Zaveri Bazaar.

Spot silver prices are also trading lower by 1.5 per cent at $16.17 an oz in tandem with falling gold prices. Silver also found buyers on low. The white precious metals closed with a gain of 2.78 per cent or Rs 1000 at Rs 37,000 a kg. After hitting the level of $72.22 a barrel on Monday, Brent crude declined 1.34 per cent to trade at $71.25 a barrel in earl y afternoon London trade.

On the MCX, gold prices are trading lower by 1.5 per cent at Rs 26,501 per 10gms as volatility in the international market caught traders by a surprise.

"Strength in the dollar index and weakness in the base metals pack coupled with profit booking at higher levels is acting as a negative factor for prices," said an analyst.

On the MCX, silver for near month delivery is trading lower by 2.5 per cent at Rs 36,677 a kg.

"We expect gold and silver prices to trade lower as growth and optimism in the US economy with the outcome of Swiss referendum not to boost its holdings will act as a negative factor. This coupled with strength in the DX will also act as a negative factor," said Mallya.

Oil markets have been volatile in the recent weeks although the negative trend dominates the asset class. Ample of supplies from the OPEC as well as from the US coupled with OPEC's maintaining its status quo to cut its crude output will exert downside pressure on prices.

Meanwhile, Citibank forecast gold to average at $1220 an oz in 2015 on expected fall in both supply and demand of the yellow metal.

The bank estimates gold demand to stand at 4,189 tonnes in 2015 as against supply of 3,030 tonnes. Citibank said that sustained fall in prices and rising cost of production create negative margins and cause producers to exit the market.

Base metals also declined with copper fell by 1.2 per cent today as crude oil retreated and after a gauge of manufacturing strength fell to an eight-month low in China, the largest metals consumer. In addition, weak construction data from UK exerted downside pressure on prices.

Source: BusinesStandard

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