Gold price slips to breach psychological barriers, reduces buying appeal

Sentiment looks positive with dollar index and equity markets rising

Gold slipped the key psychological barriers in both domestic and international markets amid concerns of strengthening the dollar and a rally in the stock markets which reduced the yellow metal’s safe-haven buying appeal.

Standard gold in the popular Zaveri Bazaar here slipped below the benchmark Rs 33,000 per 10 grams to close on Friday at Rs 32820 per 10 grams which revived buying sentiment albeit marginally. Gold prices in local markets have declined by over 2 per cent in the last one week.

Gold futures for delivery in April slipped to hit the lowest in five months at $1293.20 an oz on the Comex trade late Friday evening following huge technical selling pressure including stop orders. In spot London market, gold price was hovering around $1293 an oz at Friday close. Analysts, however, forecast gold price to bounce back after testing some downside waters in the weeks to come.

“Gold price has reversed after touching the range of $1355 - 65 an oz in the international markets for fifth time since 2013. This means, gold has all supporting factors for reversal with rally in the equity markets and dollar index. Hence, we believe gold price to bounce back after touching the low of $1285 an oz, which is not far away from the current level,” said Gnanasekar Thiagarajan, Director, Commtrendz.

Interestingly, gold requires a fresh factor to support a sharp jump from the current level. Hence, gold prices may bounce back but in a steady range, an analyst with a leading broking firm said.

Meanwhile, to take advantage of the gold price fall, many opportunistic buyers booked their ornaments in jewellery stores amid expectations of a reversal in price which, analysts forecast, is possible mainly because of the ongoing move of global central banks to book gold for cash reserves.

Analysts, however, believe that the macro environment seemed to be a positive signal for gold. Major negatively co-related assets like the US dollar and equity markets had remained calm during gold’s run-up and so enter a continuation of the trend or weakness in these assets would strengthen gold’s tailwinds.

Fortunately, the dollar index has shown overall strength last week despite mix US macroeconomic data. On Tuesday, the US housing data was reported two – year low while home prices seen rising at the slowest pace since 2015. Most importantly, the US Fed chairman Jerome Powell’s acknowledgement of the Fed’s cognizance of “cross-currents and conflicting signals” with regard to the US economic growth has painted an uncertain picture for the global analysts to watch out for.

Meanwhile, price decline has offered a buying opportunity for Indian consumers this wedding season. Jewellers are betting big for the extended period of the wedding season this year for averaging out their sales for the season.

“While consumers have started visiting stores to book their pie at the lower price, they are opting to exchange their invested gold with ornaments adjusting the making charge in the same transaction. This means consumers are not bringing in fresh money for investment in gold at this point in time perhaps they anticipate further price fall,” said Kumar Jain, Director, Umedmal Tilokchand Zaveri, a bullion dealer and jewellery retailer in Zaveri Bazaar.

Indian jewellers have witnessed a sharp decline in their sales throughout this year with frequent change in regulations. Last week, the government banned unregulated deposits under the Prevention of Money Laundering Act (PMLA) which hit jewellers hard. Jewellers were running various schemes with the monthly deposit from customers which used to contribute almost two-thirds of jewellery sales in India.