Gold falls to hit the lowest in three months

Wednesday's decline of 2.46%, the sharpest single day fall since November 2015; further fall expected on possibility of US interest rate hike in December

Standard gold declined by 2.46 per cent to hit the lowest in over three months in the popular Zaveri Bazaar here on Wednesday following global cues, prompting thereby physical buyers to defer fresh orders amid expectations of further fall.

In its sharpest daily fall since February this year, standard gold (with 0.995 purity) declined by Rs 760 to close on Thursday at Rs 30,100 per 10 grams. This level of gold price in India was seen earlier on June 23.

The trend in gold price broadly followed global move with the yellow metal in the benchmark London spot market fell by over 3 per cent or $46 to $1270.31 an oz on Tuesday, the lowest since Britain's shocking vote to leave the European Union in June (Brexit) as the dollar moved up after upbeat US job data. On Wednesday also, the declined continued with its price touching the low of $1266 an oz before traders book some quantity to push the yellow metal for a partial recovery. Gold was trading at $1275 an oz, $7 gain from Tuesday's close.

"The sharp decline in gold price was triggered by a combination of factors including fear of US Fed's interest rate hike in December, and the European Central Bank (ECB) on Tuesday indicating that it would wind up quantitative easing. Since the Brexit problem is coming into Eurozone, broad expectations are that Europe would continue monetary easing through purchase of bonds and providing liquidity. On Tuesday, ECB officially announced that it would stop monetary easing which remains negative for bullion," said Gnanasekar Thiagarajan, Director, Commtrendz Research.

To bring economic crisis in the European Union back on track, the European Central Bank has been buying bond worth euro 80 billion ($90 billion) on monthly basis to provide liquidity into the system.

Meanwhile, following the Bexit voting, sterling hit a 31-year low trading below 1.27 level against the US dollar, the level not seen after 1985.

Oil prices rose strongly with the benchmark brent crude gained 1.8 per cent to $51.80 a barrel on report that the US inventories declined for a fifth week in a row.

"We see the next support level of $1200 an oz in the international market and Rs 28,500 per 10 grams by Diwali. This level of price fall would provide a good buying opportunity for buyers," said Prithviraj Kothari, Managing Director, RiddiSiddhi Bullions Ltd.

Meanwhile, experts believe the fall in gold prices to continue till Diwali. Buyers who deserted fresh buying may come back once again once gold price touches Rs 28,500 per 10 grams. Kothari sees a recovery in gold demand at this level.

"Once gold breached the $1300 an oz support on Tuesday, the next support level in near term is seen at $1250 an oz," said Thiagarajan.

Meanwhile, the forecast - beating US manufacturing data on Monday following the Richmond Federal Reserve president Jaffrey Lacker saying a strong case for raising interest rates, supported market expectations the US Fed will raise interest rate in December.

"Gold prices will trade lower as good growth data from the US is an indication of rate hike possibility in December meeting. The election results in November will be a close watch which will create volatility across financial markets. Comments from the US Fed members about the rate hike is making precious metals volatile which will continue in the coming sessions also," said Prathamesh Mallya, Chief Manager (Commodities & Currency), Angel Commodities Broking.

Silver also followed and recorded a decline of around 4 per cent to close on Wednesday at Rs 43205 a kg, the lowest level since June 28.