Gold hits lowest in 3 months

Wednesday's decline of 2.5% sharpest single-day fall since November 2015; further dip expected on possibility of US rate hike in Dec

Standard gold declined by 2.5 per cent to hit the lowest level in a little over three months at Zaveri Bazaar here on Wednesday, on global cues. That prompted physical buyers to defer fresh orders, amid expectation of further fall. In its sharpest daily fall since February, standard gold (0.995 purity) declined by Rs 760 to close on Thursday at Rs 30,100 per 10g, a level seen earlier on June 23.

The trend broadly followed global moves. At the benchmark London spot market, gold fell a little over three per cent or $46 to $1,270.31 an ounce on Tuesday, the lowest since Britain’s vote to leave the European Union in June (Brexit), as the dollar moved up after upbeat US job data. On Wednesday, the decline continued, with the price touching a low of $1,266 an oz before traders booked some quantity to push the yellow metal for a partial recovery. Gold was trading at $1,275 an oz, a $7 gain, from Tuesday’s close.

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

The ECB has been buying bonds worth $90 billion a month to provide liquidity into the system. After the Brexit vote, the pound had fallen to a 31-year low, trading below $1.27, not seen since 1985.

Oil prices rose strongly, with the benchmark Brent crude up 1.8 per cent to $51.8 a barrel, on a report that US inventories declined for a fifth week in a row.

“We see the next support level (for gold) of $1,200 an oz in the international market and Rs 28,500 per 10g by Diwali. This level of price fall would provide a good buying opportunity for buyers,” said Prithviraj Kothari, managing director, RiddiSiddhi Bullions.

Experts believe the fall would continue till Diwali. Buyers who deserted fresh buying might come back once again once gold touches Rs 28,500 per 10g. Kothari sees a recovery in demand at this level.

“Once gold breached the $1,300 an oz support on Tuesday, the next support level in the near term is seen at $1,250 an oz,” said Thiagarajan.

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

“Gold prices will trade lower, as good growth data from the US is an indication of a rate hike possibility in the December meeting. The election results in November will be closely watched and 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,” said Prathamesh Mallya at Angel Commodities Broking.

Silver followed, down four per cent to close on Wednesday at Rs 43,205 a kg, lowest since June 28.