Gold prices southward bound

10% drop in a month; expected to fall to about Rs 25,000/10g in the near future

In the past month, gold prices have corrected 10 per cent. Market participants and analysts feel prices might fall another 5-10 per cent in the next one or two months.

“In the spot market, prices have fallen to about Rs 26,950/10g, a 10 per cent fall in just a month. We feel gold has further downside potential and could test $1,100/oz. With that in mind and with a view the rupee will stay at 57.5-60.2/dollar, gold prices could decline to Rs 25,000 levels. That said, the market is yet to discount the effect of a possible duty cut,” said Sudheesh Nambiath, precious metals analyst, GFMS, Thomson Reuters Commodities Research

Currently, the price movement might be on a pause mode, as previous import relaxations announced by the central bank have not been implemented yet; related clarifications/notifications have not been issued by the customs department. Premia for physical delivery, which fell to $20 a day after the Reserve Bank of India (RBI) announced relaxations, now stand at about $35/oz. Last week, these stood at $50.

It is expected once the existing relaxations come into force, more gold will come into the market, which has entered a lean season. Policy changes, expected next month, could further relax import norms. It is widely expected in Budget 2014-15, to be presented in the first half of next month, the import duty on gold will be cut two-three per cent. The cumulative impact of this could be a further dip in prices—-7-10 per cent—-in the next one or two months.

Vijay Jain, chief executive of Orra Jewellery said, “I see gold prices falling further in the next two months, once the flow of imported gold increases. However, between Rs 24,000 to 25,000, there is huge demand for users, and these levels might be seen in the next two months.” He doesn’t feel investment demand for physical gold will improve in the near future.

Volatility in prices has increased, which led to a jump in trading interest in the yellow metal. Through the past few weeks, trading interest in gold on futures exchanges has been on the rise, with the central bank announcing relaxations in import norms. Volumes of gold traded on MCX have risen about 40 per cent in the past two weeks. In the past few days, open interest has been moderating, as many traders who were short have booked profits, indicating gold prices could take a pause, before falling further. NCDEX gold hedge contracts, in which premia and duty movements aren’t reflected, have also seen good volumes, though these are far behind gold futures on the Multi Commodity Exchange.

The policy relaxation announced by the Reserve Bank of India on May 21 resulted in physical delivery premia in the spot market being halved. Globally, gold prices started moderating with the rupee’s gains.

Current prices from Rs 26,950 to Rs 27,125 per 10 g and fall in 10.5 per cent in a month.