Gold enters bullish territory

FOMC minutes reiterates "patience" on interest rates hike, to support gold to $1,325 and beyond in near future

After a steep 2.4 per cent decline in global markets on Thursday, owing to a huge sell-off, gold entered bullish territory on Friday. This followed a statement by the US Federal Reserve’s Federal Open Market Committee (FOMC) that it would “remain patient in the beginning to normalise the stance on monetary policy”.

FOMC’s stance indicates an interest rate increase will take longer than estimated.

Standard gold jumped about one per cent in Zaveri Bazaar here on Saturday. The commodity gained Rs 300/10g to close at Rs 28,200/10g.

“Both technically and fundamentally, we don’t see much downside in gold. It could be volatile, but the downside is limited. Therefore, gold could easily surpass the psychological barrier of $1,300 an oz to hit $1,325 an oz in the near term. The developments in Greece, however, hold the key. Any bad news might take gold even higher,” said Gnanasekar Thiagarajan, director, Commtrendz Research.

After hitting a low of $1,251/oz, below the 200-day moving average of $1,253, gold rebounded on Friday to close at $1,284.1 an oz in London.

“After a rally on Friday, gold settled with more than three per cent gains, its first monthly gain this year. Earlier this week, prices reacted to the FOMC’s first policy meeting of the year and saw heavy selling. Also, physical gold in the Asian market remained muted. But slowly and steadily, the trend is turning up, as the currency market is turbulent. Energy groups in the US announced they would cut investment programmes because of falling oil prices, which could axe rate rise speculations. Also, the central bank is adding reserves. All these could drag the prices to $1,370-$1,380 again. On the domestic front, prices could trade at Rs 25,500-29,500/10g,” said Ajay Kedia, managing director, Kedia Commodity Commtrade.

Silver prices ended the week with a moderate gain of $0.03/oz at $17.28 an oz on Friday.

“Silver is a plain catch of gold. Eventually, it should perform much better than gold, as it is the second fiddle. Lots of fundamentals are supporting a big rally in silver, but it will take some time,” said Thiagarajan.

“With high volatility in bullion prices, traders have adopted a revamped strategy. On every fall, they buy some quantity to sell on a rise, unlike a one-way buying or selling move and ‘wait-and-watch’ after the first execution, which they used to practice earlier. So, even volatility offers some returns for investors today,” said Kumar Jain, director, Umedmal Tilokchand Zaveri, a city-based bullion dealer.

Global consultancy GFMS estimates bullish long-term fundamentals for gold. Along with knock-on benefits of lower oil prices, there are inflationary forces on the long-term horizon (energy only contributes eight per cent to US consumers’ price index) as a result of the massive liquidity in the system. This year will see the nadir of gold prices, GFMS says.

The clear knock-on effect was stifled physical demand in 2014, compounded by limited expectations of a price recovery; and continued resistance to gold in the professional fraternity.

Asian investors exhibited something of a paradigm shift in purchasing attitudes in 2014 partly as a result of 2013 activity, price-responsive physical investors around the world confounded expectations of suppliers in 2014. The much-vaunted $1,200 target level, expected to trigger pent-up demand, passed by almost unnoticed as would-be buyers stood aside as prices slumped, awaiting stability and a sign of an upturn.