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Gold drops on Goldman Sach's bearish outlook

Gold prices on Tuesday fell sharply in the foreign market - from $1,330 to $1,290 an ounce - after Goldman Sach's bearish outlook

Rajesh Bhayani  |  Mumbai 

Gold jewellery
Image via Shutterstock

On April 15 last year, prices had corrected sharply, following investment bank saying it had a bearish outlook on the commodity. At that time, prices had fallen from $1,600/oz to $1,300/oz in only a few days.

On Tuesday, exactly a year later, again fell sharply in the foreign market—from $1,330/oz to $1,290/oz—in just a few hours. Again, it was Goldman Sachs that came up with a bearish outlook—it said the metal would hit $1,050/oz by the year-end.

Tuesday’s fall, however, wasn’t reflected in the Indian market, as spot prices in Mumbai closed Rs 200/10g higher at Rs 29,680/10g. A trader said this was because spot premium, earlier quoted at $35, had crossed $50 and was quoted at $55/oz. Therefore, the fall wasn’t reflected in domestic spot prices. In India, demand is quite high due to lower prices and ahead of Akshaya Tritiya.

In the international market, positions were cut, amid reports showing conditions in the US economy were improving. Tuesday’s data on retail sales in the US also showed strength in demand. The recent gold rally was likely driven by US macroeconomic data and events in Ukraine.

“US retail data came out very strongly, which means tapering will continue. Due to the strengthening US economy, holding gold is not beneficial. Also, the World Gold Council showed China’s gold demand to witness a negligible rise in the next few years,” Gnanasekhar Thiagarajan, director of Commtrendz Research said, explaining the fall in prices.

“At every high level, hedging by producers comes into the picture in a very big way. This time, at $1,330/oz, producer hedging saw massive activity,” he added.

In its report, Goldman Sachs also said silver prices were likely to stand at $17.5/oz by the year-end.

From $1,290/oz, gold had marginally rebounded to $1,294/oz on Tuesday, while silver was trading at $19.45/oz, down three per cent compared to morning trade.

Goldman Sachs said unlike last year, this time, the price fall might be gradual. “While further escalation intentions could support gold prices, we expect a sequential acceleration in US and Chinese activity. Therefore, gold prices could decline, though it might take several weeks to lift uncertainty around this acceleration. Importantly, it will require a significant sustained slowdown in US growth for us to revisit our expectation for lower US gold prices through the next two years. Beyond the acceleration in US activity, signs of sequentially weaker Chinese gold imports could out pressure on prices in coming months.”

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Gold drops on Goldman Sach's bearish outlook

Gold prices on Tuesday fell sharply in the foreign market - from $1,330 to $1,290 an ounce - after Goldman Sach's bearish outlook

Gold prices on Tuesday fell sharply in the foreign market - from $1,330 to $1,290 an ounce - after Goldman Sach's bearish outlook On April 15 last year, prices had corrected sharply, following investment bank saying it had a bearish outlook on the commodity. At that time, prices had fallen from $1,600/oz to $1,300/oz in only a few days.

On Tuesday, exactly a year later, again fell sharply in the foreign market—from $1,330/oz to $1,290/oz—in just a few hours. Again, it was Goldman Sachs that came up with a bearish outlook—it said the metal would hit $1,050/oz by the year-end.

Tuesday’s fall, however, wasn’t reflected in the Indian market, as spot prices in Mumbai closed Rs 200/10g higher at Rs 29,680/10g. A trader said this was because spot premium, earlier quoted at $35, had crossed $50 and was quoted at $55/oz. Therefore, the fall wasn’t reflected in domestic spot prices. In India, demand is quite high due to lower prices and ahead of Akshaya Tritiya.

In the international market, positions were cut, amid reports showing conditions in the US economy were improving. Tuesday’s data on retail sales in the US also showed strength in demand. The recent gold rally was likely driven by US macroeconomic data and events in Ukraine.

“US retail data came out very strongly, which means tapering will continue. Due to the strengthening US economy, holding gold is not beneficial. Also, the World Gold Council showed China’s gold demand to witness a negligible rise in the next few years,” Gnanasekhar Thiagarajan, director of Commtrendz Research said, explaining the fall in prices.

“At every high level, hedging by producers comes into the picture in a very big way. This time, at $1,330/oz, producer hedging saw massive activity,” he added.

In its report, Goldman Sachs also said silver prices were likely to stand at $17.5/oz by the year-end.

From $1,290/oz, gold had marginally rebounded to $1,294/oz on Tuesday, while silver was trading at $19.45/oz, down three per cent compared to morning trade.

Goldman Sachs said unlike last year, this time, the price fall might be gradual. “While further escalation intentions could support gold prices, we expect a sequential acceleration in US and Chinese activity. Therefore, gold prices could decline, though it might take several weeks to lift uncertainty around this acceleration. Importantly, it will require a significant sustained slowdown in US growth for us to revisit our expectation for lower US gold prices through the next two years. Beyond the acceleration in US activity, signs of sequentially weaker Chinese gold imports could out pressure on prices in coming months.”
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