Gold at 29-month high, may touch Rs 32,500 mark

Renewed hedge funds' long position may keep sentiment up; traders eye Rs 32,500 per 10 gm on favourable monsoon and better kharif harvest

Gold prices spurted to Rs 31,340 per 10 grams, a 29-month high, by surging Rs 540 in the bullion market on Saturday, following global demand for safe haven. With hedge funds strengthening their long positions on gold, prices for the precious metal are expected to surpass the Rs 32,500-mark in the near-term.

Standard gold in Mumbai’s popular Zaveri Bazaar has risen about 24 per cent this calendar year on weakening dollar amid uncertainties. In India, however, gold prices remained elevated on stockists’ demand as jewellers prepared new designs for the upcoming India International Jewellery Show (IIJS), scheduled to be held in Mumbai next week.

“A much slower-than-expected United States economic growth weighed on the dollar… At its policy meeting this week, the Federal Reserve stopped short of indicating that a further increase in US interest rates is on the cards for later this year,” said Gnanasekhar Thiagarajan, director, Commtrendz.

In dollar terms, however, gold prices jumped by 26 per cent this calendar year, following sharp jump in hedge funds’ long position. The hedge funds have been increasing their net long positions in COMEX to a record high in 2016, hinting at rising investment interest in Silver.

In Silver, more upside is expected as it has been lagging the other peers in the bullion complex and tends to have exaggerated moves due to it being relatively illiquid. “Gold would soon surpass Rs 32,500 per 10 grams in local currency on expectations of favourable demand. With the favourable monsoon, the upsurge is likely to continue throughout this year, leaving thereby more disposable income in the hands of the common man,” said Prithviraj Kothari, managing director, RiddiSiddhi Bullion, a Zaveri Bazaar-based bullion dealer.

Gold remained elevated after dollar extended loss on Friday, following Bank of Japan (BOJ) announcement of lower-than-expected stimulus package. The BOJ expanded monetary stimulus through a modest increase in purchases of exchange-traded funds, yielding to pressure from the government and financial markets for bolder action to spur growth and accelerate inflation towards its 2 per cent target.

“Demand has increased amid concerns surrounding global growth after Britain’s vote to exit the European Union. After some profit booking during the month, prices have recovered with some help from the US Fed’s dovish statements though these indications are subject to regular changes based on data. It also helped that the Bank of Japan approved some stimulus measures, boosting demand for precious metals. Global growth concerns, a relatively weak dollar, continued low global interest rates, a not-so-strong rupee and uncertainty around upcoming US presidential elections will lead to further gains for bullion. Gold could touch Rs 34,000 and silver Rs 55,000 given the conducive situation,” said Jayant Manglik, president, Religare Securities. Echoing similar response, Kumar Jain, director, Umedmal Tilokichand Zaveri, said “We expect gold would continue to strengthen in near future.”

Investors were seeing gold as the only avenue after crude oil fell on Friday to the lowest since April. Silver followed suit and gained similarly in the physical markets. Silver moved up to trade at around Rs 48,000 a kg ($20.20 an oz) from the level of Rs 33,565 a kg ($13.85 an oz) earlier this year.

“We expect gold prices to edge higher towards $1,375-1,380 followed by $1,435 levels. In MCX, towards Rs 31,800 followed by Rs 32,400,” said Thiagarajan. Uncertainty over interest rates has held gold in check since it rallied to more than two-year highs in the wake of Brexit vote last month. Till Brexit, bullion rose despite a stronger dollar, indicating the safe haven status. Now, it seems to have re-coupled with the inverse dollar, he added.