Equity sell-off: Gold might see fresh investment

Price to move up albeit temporarily as US Fed interest rate hike continues to remain uncertain

Gold erased initial losses in early European trade after a sell-off in global equity markets on Monday, as funds sought refuge in bullion.

Opening lower, gold recovered fully to trade at $1,160.7 an oz in early afternoon London trade. Analysts see the rapid turnaround in gold as a consequence of fund diversion.

“The sentiment is turning in favour of gold. Last week’s equity sell-off will see more money moving into precious metals. Gold is unlikely to reverse from here, as the threat of an interest rate hike in the US remains,” said Gnanasekar Thiagarajan, director, Commtrendz Research.

Holdings in the world’s largest gold fund, SPDR, rose 0.35 per cent to 677.83 tonnes after several weeks of continuous fall. The scheduled interest rate hike in September is factored into the price of gold. But the dollar might appreciate, which will raise the price of gold automatically.

Michael Mesaric, chief executive officer of Swiss refiner Valcambi Suisse, forecast the price of gold would climb to $1,350 by mid-2016.

“We are looking at two scenarios. On e, gold is going to be in a range of $1,115-1,135 for some time and then consolidate. Second, the metal might come off immediately if US Federal Reserve announces an interest rate hike,” said Thiagarajan.

Standard gold in Mumbai’s Zaveri Bazaar closed with a gain of Rs 235 at Rs 27,535 per 10 g on Monday. A major part of the gain is due to the fall in the rupee, which closed at 66.65 to a dollar on Monday, down from 65.83 on Friday.

“Money has to be parked somewhere. Currently equity, bonds and real estate are out of favour. So, gold is the only option left for investors. But any spurt in gold prices due to fund diversion from other asset classes will be temporary,” said Jayant Manglik, president, retail distribution, Religare Securities.