Bear operators tighten grip on gold, silver

Punters have tightened their grip on gold and silver, whose prices have been falling consistently. Gold has fallen over five per cent in the past one month on rising US interest rates and the metal tracking US bond yields more than the dollar index. 

Last month, both the US Dollar Index and the gold price were sliding, breaking its inverse correlation. However, gold was tracking inversely the rising bond yields in the US.  

In the past one week, US 10-year treasury bond yields have risen from 2.13 to 2.34 per cent, while gold has lost three per cent of its value. Even risk averseness has made investors moving away from gold. The gold-silver ratio has also risen to a 13-month high, indicating that silver prices were falling faster than gold’s with the drop in metal prices. 

Nigam Arora, author of The Arora Report and international market analyst following algorithms, said, “There are lots of stops below $1200.” 

Usually, in a falling market, price halts at the immediate lower stop-loss, but gravity of selling may force breaking a low-side stop-loss, dragging the market further low, which is not ruled out for gold. 

Arora said, “At present, in the bullion market hunt-and-destroy algorithms are operating. If opportunity arises, they will take out the stops, perhaps to $1,182-1,194”. In other words, the market is poised for further fall.  

His another argument is that till last month, the gold price in India was quoted at a huge premium of $10 an ounce, seen after a long time following import demand ahead of the three per cent goods and services tax (GST) coming into force from July 1. 

“Our insight here is that this is a negative development for gold. The reason is that the demand in May and June is borrowing from the demand in July and August. The Arora Report expects demand for gold in India to fall off the cliff as the month turns,” said Arora.

On Multi Commodity Exchange (MCX), silver prices are lowest since November, and gold prices are at a seven-week low. Open interest which was 4477 lots a month ago on MCX is now 7597 and large part of increase is due to rising bearish bets. As a result top 10 traders bullish positions are 1681 lots while top 10 bears are holding 2917 lots sell open interest. 

Anuj Gupta, head of research, Angel Commodities, said, “Expectations of (further) increase in interest rates by the US Fed and robust growth data, falling crude oil prices, low inflation, etc, have put gold in a bearish zone.” He expected the gold price to fall further to touch Rs 27,000-26,800 ($1,180-$1,165) on MCX in the next three months.            

On silver, Ajay Kedia, director, Kedia Commodities, said, “With high volatility seen in silver, traders have shifted to silver mini and micro contracts, but the trend is bearish.”

Bears have an upper hand in top 10 buy and sell open interest in all three silver contracts. Kedia attributed the rise in the gold-silver ratio or sharper fall in silver price to the slowing of major economies like the US and China.

With the implementation of a three per cent GST on gold and jewellery, premiums have almost vanished and imports are drying up as jewellery shops are virtually empty.