Gold at 2-month high on safe-haven buying

Upward march might continue on supportive fundamentals, with a slowing Chinese economy and escalating tensions in West Asia, Korea

Standard gold continued its upward march and gained 1.3 per cent at Zaveri Bazaar here on Thursday, following similar moves in global markets, with stockists' booking on fear of further rise.

The price jumped to Rs 26,200 per 10g in mid-Thursday trade before profit booking took a toll. Gold closed with a gain of around one per cent at Rs 26,110 per 10g. It had jumped to $1,102 an ounce in London before falling marginally to $1,099 an oz in late afternoon trade.

Escalating tension in West Saia, led by Iran severing ties with a number of Gulf countries, plus the hydrogen bomb tests by North Korea, have raised geopolitical uncertainty. Another major factor is global economic uncertainty. With China’s growth dropping, as seen from falling equity markets and the yuan's devaluation, traders are taking long bets in gold. "As a consequence, gold saw safe-haven buying from investors,” said Gnanasekar Thiagarajan, director, Commtrendz Research.

And, falling crude oil prices have helped the upward move. Brent crude hit a new multiyear low of $32 a tonne. The international price of the India's oil basket was $31.3 a barrel on Wednesday, a decline from $32.5 a bbl on Tuesday.

The Chinese equity markets' plunge of seven per cent on Thursday prompted a halt in trading, on fear of an economic drawdown. Meanwhile, gold is set to take a direction from US non-farm payroll data, set to be released on Friday. In case of weak data, the price would rise further and vice versa.  

A recent Macquarie Research report sees a stronger price in the first quarter of this year and a slightly firmer price in 2016 as a whole. Macquarie believes the dollar would remain stronger for somewhat longer, given the divergence in monetary policy between the US and other currency areas, and the general malaise in commodity pricing, reflecting concern over Chinese demand, something which (at least at the retail level) appears to be affecting gold, too.

With South Korea seeking support from America in terms of installation of nuclear missiles at its border with North Korea, tension is likely to continue. On the economic sentiment in China, no respite is in sight. Therefore, prices are likely to remain firm.

“We expect robust buying, as the trend suggests in the past. With prices moving up, consumers are booking more of jewellery instead of investment products like coins and bars,” said Kumar Jain, director, Umedmal Tilokchand Zaveri, a bullion dealer and jewellery retailer here.

Silver prices broadly followed and closed with a marginal gain of Rs 50 to Rs 40,000 a kg in the physical market here. It has, however, lagged due to weak sentiment in base metals. Since a third of global silver output is used for industrial purposes, its price normally moves in line with those of metals. Following the trend abroad, silver has risen 1.35 per cent in the past three days, with investors cautious on it.