A day after crash, gold prices continue to be bearish

Gold prices likely to fall further to Rs 24,000 for 10g in the coming months

After a flash crash in gold prices on Monday, the markets were calm on Tuesday with prices hovering in a narrow range. Gold prices closed Rs 150 lower at Rs 25,400 for 10 gram at Mumbai’s spot market Zaveri Bazaar.

In the international market, gold was trading at Monday’s level of $1,106 an ounce. In rupee terms, gold price is expected to drift further down towards Rs 24,000 per 10 gram in the coming months. Silver prices have shown some strength by not falling much.

According to trade sources, Monday’s fall in early morning trade in the Chinese market amid thin volumes was by an algo trader, which resulted in a sharp fall. However, the trade had broken multi-year strong technical support level of $1,128-1,132 from where gold rebounded thrice in the past two years. As a result, several stop-loss related selling followed and algo traders changed their trades, which resulting in sustained fall.

 

Gold was already looking weak with dollar index strengthening and the US Federal reserve expected to increase rates in the near future. Investors did not feel the need to find a safe haven following the Greek and Iran deals. Now with weaker technicals, gold prices will fall further. Ravindra Rao, head of commodity research at AnandRathi Commodities, said: “Aside from the weak fundamental picture, technicals also point toward bearishness in the metal. Gold has penetrated the strong support of $1,128 an ounce, a neckline support of a ‘head and shoulder’ pattern. It’s a strong bearish formation and the target comes to $990 an ounce. On the domestic front, considering the current rupee-dollar conversion, gold prices could fall in the range of Rs 24,000-23,500.”

On the Multi Commodity Exchange on Tuesday, gold was trading at Rs 24,957 for 10 gram in the August contract.

Contrary to gold, silver has remained stable. The gold-silver ratio, which was a little under 76 on Monday, has fallen further below 75 on Tuesday, indicating strength in silver compared to gold. On Tuesday, MCX silver was quoted at Rs 34,080 a kg, down 0.18 per cent from Monday, while in spot market in Mumbai, silver closed Rs 50 higher at Rs 34,600 a kg.