The festival season is at the door, and yet for the most cherished commodity for Indians, gold, the demand — which normally spikes in this period — has been only tepid. This is reflected in the price of the yellow metal, which fell to a 15-month low at Rs.26,560 per 10 gram last week before some recovery. Gold closed the week at Rs.27,180 in Mumbai.
The demand for the metal seems to have been impacted by a strong U.S. dollar and its negative impact on gold prices. Besides, the expectations of the U.S. Federal Reserve hiking interest rates have dented gold’s appeal.
In India, the lack of a clear price direction and the expectation of lower prices have been key drivers in deterring purchases among physical buyers and a similar mentality has prevailed in the investor demand. “We have been seeing a build up of short sellers and outflows from exchange traded funds (ETFs) continue,” Fund Manager at Quantum AMC Chirag Mehta said. “In India, physical buyers have been waiting for gold to come down to Rs.25,000 levels to enter the market,” said Nitin Nachnani, Commodities analyst at Geojit BNP Paribas. “However, in the domestic market, technically there is a strong support at Rs.26,200 levels and Rs.25,000 levels are unlikely to be seen in the current calendar.”
ADVERTISEMENT
Alternative investments such as equities have rallied by more than 30-35 per cent in the last year, and the quarter results are expected to start trickling in. “However, stock prices seem to have discounted the good results and factored them in, and it would have to be something exceptional to trigger renewed interest. Besides, in the last few weeks, foreign institutional investors (FIIs) have been huge sellers in the economy, and this has not be positive for equities,” Mr. Nachnani said.
Indian gold price has fallen 20 per cent in the last two years from the peaks, and analysts feel, at current levels, it does offer a ‘fair’ value. “There is apprehension as to whether gold prices have bottomed out. At around $1,200-mark, one should slowly start seeing smart money move to gold despite the negative momentum. This is because the prices are closer to the all in cost of producing an ounce of gold, which was around $1,200 per ounce levels,” Mr. Mehta said.Internationally, gold has recovered well from $1,180 (a strong support level) to $1,230 per ounce, which is indicative of a strong move, analysts feel.
Swiss referendumSwitzerland is to hold a referendum on November 30 on gold. If passed, it would mandate the Swiss central bank to hold a minimum of 20 per cent of foreign reserves in gold against a level of 7.7 per cent today.
As the central bank had reportedly sold 60 per cent of gold reserves over the last decade, it is expected that the country would need to buy around 1,500 tonnes of gold over the following three years to have a stronger gold-backed currency.
“This would be a major development to watch out for and could have a huge impact on the price of gold going forward,’’ Mr. Mehta said.