Gold drops to 3-month low

Gold recorded a decline of over 6% since its recent peak of Rs 28700 on July 11

Standard gold hit a three-month low at Zaveri Bazaar here on Friday, following a sustained decline in global markets on the loss of bullion's status as a safe hedge against inflation.

After falling below the benchmark Rs 27,000 per 10g during the day, it recovered a bit on fresh buying by investors to close at Rs 27,250 per 10g. This is a decline of over six per cent since its recent peak of Rs 28,700 for 10g on July 11. Silver did likewise and ended the day with a marginal decline of Rs 330 to Rs 41,900 a kg on Friday. It is down 12 per cent since its recent peak of Rs 47,950 a kg on July 11.

With geopolitical tension settling down in the wake of the Ukraine crisis, gold is losing its appeal as a safe bet against a global economic slump. Since it has already breached the first resistance of $1,240 an ounce, it is expected to hit the second resistance of $1,200 an oz very soon, said Gnanasekhar Thiagarajan, director, Commtrenz Research.

Gold lost 7.5 per cent in the global market to trade at $1,237.71 an oz from the $1,338 an oz it hit on July 11. Silver also fell by a steep 13 per cent to $18.63 an oz in London on lower demand from industrial uses

After the US Federal Reserve hinted, after an intermittent decline in the unemployment rate, at complete withdrawal of its economic booster (termed quantitative easing) and a rise in interest rates, the European Central Bank indicated it would then move in the opposite direction to provide a breather for the region's ailing economy.

On Friday, European markets were trading on a mixed note, ahead of the announcement of important economic indicators from the US in the evening session.

Euro zone industrial production gained one per cent in August as against a decline of 0.3 per cent in July.

Meanwhile, appreciation in the rupee restricted bullion's further fall. The rupee rose 0.3 per cent, following bouts of selling of the greenback by banks and exporters, and touched a high of 60.71 to the dollar before closing.

Spot gold prices are near a seven-month low, an apparent easing of tensions over Ukraine and the prospect of an early rise in US interest rates. Besides, growth and optimism in the US economy will reduce the safe-haven bids for the metal, exerting downside pressure.

On the Multi Commodity Exchange (MCX) here, gold prices are trading lower by around 0.2 per cent at Rs 26,930 for 10g.

Spot silver prices are trading lower, taking cues from weak performance in gold. However, strong performance in the base metals pack, coupled with weakness in the dollar index, is cushioning a sharp downside. On the MCX, silver prices are trading on a negative note by 0.2 per cent and touched a low of Rs 41,204 a kg.

"We expect gold and silver prices to trade on a negative note, on declining safe-haven appeal for the metal. Besides, optimism and growth in the US is acting as a negative factor. Crude oil prices are expected to trade higher on bargain buying at lower levels because the price decline from $105 a barrel to around $90 has given investors an opportunity to enter at lower levels, taking into consideration the host of factors surrounding energy markets" said Prathamesh Mallya, senior research analyst, Angel Broking.