Gold price hits one-year high on global recovery

Market slips in huge discount as buyers keep away

Gold prices on Tuesday traded at a one-and-a-half-year high in Mumbai’s spot market following a sharp recovery in global markets. However, buyers were absent in the market and prices were to be quoted at a huge discount to the cost of imports.

In Zaveri Bazar, gold price for 995 purity opened on Tuesday at Rs 28,205 for 10 gm, which is the highest after June 2014, against Monday’s closing price of Rs 27,775. On Tuesday, it closed at Rs 27,995, which is also highest after January 31, 2015. In international markets, gold touched $1,200 an ounce on Monday, which corrected to $1,188 on Tuesday.

At a level of Rs 28,000, “buyers are not seen in the market despite price is quoted at $18-20 (per ounce) discount to cost of import,” said Ketan Shroff, director, Penta Gold. This translates into a discount of Rs 400 for 10 gm. He added that supply of scrap gold increased in the market.

According to traders, those holding gold, which was imported earlier, are selling it at whatever price available. In January, 70 tonnes of gold was imported, compared to 100 tonnes each in November and December 2015. That supply is also flooding the market.

Chirag Mehta, senior fund manager — alternative investments, Quantum AMC, said: “The level of divergence in the US Fed’s stance compared to the rest of the world would diminish or at least stabilise, which would ease the downward pressure on the price of gold. The US dollar could weaken from its elevated levels. Thus, investors would do well to recognise the shifting of economic landscape by allocating a portion of their portfolio to gold. In a volatile asset environment and an era of experimental central banking, it’s difficult to forecast whether or not the bottom in gold has been placed. Given the macroeconomic picture, the downsides look limited in gold and this year will likely mark an inflection point in the yellow metal.”

Gold is also reflecting open-market discount on MCX futures, which is trading at Rs 28,300 per 10 gm.

Most traders on MCX are bullish about gold.

Total positions of the top 10 players on MCX are 5.7 tonnes, while net short or bearish nets are 2.7 tonnes. Total open interest, which was eight tonnes a month ago, rose to 11.6 tonnes on Monday.