Gold breaches Rs 50K, silver surges to Rs 60K; analysts see further upside

Gold and silver on Wednesday crossed Rs 50,000 and Rs 60,000 levels, respectively, in both physical and futures markets before clawing down a bit. 

At the popular Zaveri Bazar in the city, the yellow metal opened over Rs 50,000 per 10 gram, while silver over Rs 60,000 a kg.  While standard gold closed at Rs 49,980 per 10 gram, down 1.5 per cent, 999 purity gold ended its trade at Rs 50,181. Silver closed at Rs 59,170 a kg, up 7.9 per cent.

On the MCX, too, August futures of gold rose as high as  Rs 50,085, but cooling down to Rs 49,747 (until 6.30 pm IST).  September futures of silver surged to Rs 61,280 per kg (the highest since December 2012) in early trading on the MCX, but later slipped to Rs 59,845 (until 6.30 pm IST) on profit-booking. 

The price of gold gained momentum on the back of European leaders agreeing on a stimulus package to revive their Covid-hit economy and the US Congress struggling to agree on a new aid package. Heightening tensions between the US and China also supported the rally.

Besides, the euro rose to an 18-month high, pushing up commodities. 

The expanding balance sheet of major central banks, according to experts, will boost demand for gold over dollar debasement and its price may see a déjà vu effect from 2010-11. Analysts are bullish on the two precious metals, saying intermittent corrections should provide buying opportunities for those who feel left out. Silver had seen a high of Rs 75,000 in April 2011; the current momentum suggests that level is not far.

Since March lows, when all assets classes had witnessed a sharp fall in India and globally, gold is up 30 per cent, and silver is up 80 per cent on MCX futures.

On one hand, increased industrial demand and safe-haven buying are making silver costlier, while on the other, there is little demand for physical gold.

Still, jewellers appear happy that their unsold stock was now valued higher; investors are elated, looking at the rising notional value of their holding. 

Demand in cities is extremely thin because of the impact of the lockdown and prevailing restrictions.  In rural areas, there has been some traction after Unlock 1 in June, but much lower than that during the same period last year, said experts.

Sriram Iyer, senior research analyst at Reliance Securities, said: “MCX gold October contract has entered an uncharted territory where the price has shifted to new range zone. The price would remain bullish over the short-to-medium term and further upside could take it to Rs 51,200-54,500 levels; support is placed at Rs 47,800-46600 levels."

On the MCX, open interest in gold had hit its highest level this month. Short positions also are significantly more than long positions, indicating high hedge positions. The options trading data indicates the bullish phase to continue for both metals.

Iyer said: “The gold options data for call open interest (OI) for July expiry suggests that investors booked some profits after an upbeat opening on Wednesday after the price touched an all-time high of above Rs 50,000. But, a built-up of OI and volumes have been observed in 'Puts' for July expiry, suggesting investors are still bullish. The silver options data, too, suggests that investors are still bullish on the markets and that there is more upside.” The silver futures open interest data shows some moderation over the past two days, indicating profit-booking. The top 10 long and short position data are almost similar, suggesting silver may see an interesting fight between bull and bear.