Gold hits 33-month low in global market, may fall more

Gold tumbled 3.4% on previous session's settlement to $1,304.90 a troy ounce during European morning trade, its lowest price since September 2010

Gold and silver prices fell sharply today touching 33-month lows. The fall was so sharp that it reminded one of the fall in April this year when gold corrected over $100 per ounce.

Both precious metals started falling as investors digested comments from the Federal Reserve that stoked fears of a scaling back of the US central bank’s bond purchases. China’s lower-than-expected PMI, released today, only added fuel.

LME Gold tumbled 3.5 per cent on the previous session’s settlement to $1,304 a troy ounce, its lowest since September 2010. Intra-day, gold fell to $1,286.2. Silver was down 5.6 per cent to trade around $20.2 per ounce. Today, it had hit a low of $19.73 per ounce.

In Indian market however, due to sharp fall in rupee against dollar, gold and silver price erosion was contained. Still gold today closed Rs 765 lower in Mumbai’s Zaveri Bazar  to Rs 27, 160 per 10g while silver closed Rs 1,935  lower at Rs 43,115 a kg.

However, unlike the fall in April, this time, no one expects follow-up buying, at least from Indian consumers, as prices in India are much higher due to the fall in the rupee and two per cent higher customs duty imposed late last month.

Since India is a price taker in gold, lower rupee means higher cost of imports. As a result, gold and silver prices were down 2.4 and 4.2 per cent respectively, At  the MCX, gold futures was trading at Rs 27,129 per 10g before touching a low of Rs 26,890, while silver was trading at Rs 41,770 a kg after recovering from a low of Rs 41,186 a kg.

Haresh Soni, chairman of the All India Gems and Jewellery Trade Federation (GJF), said: “Despite a sharp fall in prices, Indian consumers will not come and buy because for them, due to the weaker rupee and additional import duty, prices are still higher than the international price.” Soni believes Indian consumers will not be in a hurry this time to buy gold.

Globally, investors have been selling gold and gold holdings of SPDR, the largest gold ETF. On December 3, 2012, gold holdings in SPDR was at its all-time high of 1,348.8 tonnes, which fell to 999 tonnes today.

In the futures market in India, traders were seen cutting their long positions when gold fell below the technical support of $1,320. Huge selling came in gold and silver due to violation of technical stop losses, a trader in the futures market said.

Kunal Shah, head of research at Nirmal Bang Commodities, said: “Like liquidation in most safe haven assets, we are of the firm view that gold prices are likely to drop below $1,225 - $1,200 during the course of the year.”

Ashok Mittal, chief executive officer of Emkay Commodities, said: “Indian consumers will wait for to gold fall further and our view is that RBI (Reserve Bank of India) may not let the rupee t trade so low and will take steps which could bring the dollar to 58. These will make gold cheaper for Indian consumers.”