Gold falls on the lack of buying support

Stockists stay away from fresh orders due to poor lean season demand

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Indian consumer stayed away from fresh purchase of bullions despite a drastic decline in their prices in the overseas market. The impact of fall in domestic market, however, was capped due to 2% increase in customs duty and a steep fall in the rupee against the dollar.

Spot gold fell marginally by around 1% to close at Rs 26,895 per 10 grams on Friday in Mumbai’s Zaveri Bazaar as buyers abstained from fresh orders amid thin jewellery demand in the ongoing lean season. Silver followed the suit and closed with a decline of 1.77% at Rs 42,350 a kg.

The bullion markets lack liquidity as buyers await stability in global markets amid concerns of the Fed’s indication of early pullback of quantitative easing (QE).

Gold in the overseas market also lost direction with analysts terming the thin movement as the metal’s losing safe haven appeal. Strengthening US economy has strengthened potential of higher returns in treasury bonds than other competing asset classes.

“Fresh purchases have been very thin in bullion today as stockists and individual consumers await price stability. While recent raise in customs duty restricted impact of global fall in Indian rupee and hence, buyers are waiting for a direction,” said Lalit Jagawat, a Mumbai-based bullion dealer.

Gold slid 23% in London this year to trade currently at $1294 an oz as investors lose their faith in it. Buyers see it as a store of value and as speculation grew that the Federal Reserve will taper debt buying which helped the metal cap a 12-year bull run last year. A CPM Group report said, “It is too early to predict whether the surge in demand around the world that followed gold’s plunge in April and pushed prices higher will be repeated as investors who were keen buyers then have become more cautious.”

In India, however, gold fell just 12.24% so far this year as a sharp depreciation in the rupee against the dollar restricted its fall in domestic market. The rupee depreciated 7.72% in 2013 to close on Friday at 59.27 against the dollar.

Silver followed suit and fell 27% in rupee value to close at Rs 42,350 a kg on Friday from the level of Rs 58040 a kg in the beginning of this year.

“This is the season when individual households sell their used gold to buy seed for sowing with the onset of the monsoon rainfalls. Hence, fresh purchase remains low during this season. But, this year, fresh orders are abnormally low as traders await global markets developments,” said a bullion dealer.

Meanwhile, gold recovered from a three year low on Friday and rose $12 to trade at $1294 an oz in London as the metal received support from Chinese buyers.

UBS lowered its 2013 gold price outlook by 10% to $1,440 an ounce, and its 2014 forecast to $1,325 an ounce from $1,625.

Analysts believe gold to hit $1200 on weak technical ground before finding support. Holdings in SPDR Gold Trust , the world's largest gold-backed exchange-traded fund, declined 0.4% to 995.35 tonnes on Thursday - the lowest in more than four years.