Gold prices to ease, silver may firm up this week

Standard gold declined 2.67% in Mumbai's Zaveri Bazaar last week to close at Rs 29,200 per 10g on Saturday

Gold prices are likely to remain under pressure this week due to strengthening of the dollar on the back of recovery indications in the US economy.

Standard gold declined 2.67 per cent in Mumbai’s Zaveri Bazaar last week to close at Rs 29,200 per 10g on Saturday from Rs 30,000 per 10g on Monday. Gold prices declined in the domestic market, despite a marginal rise in prices in the global markets. In the benchmark London market, gold prices recorded a marginal improvement of 0.36 per cent at $1,293.46 an oz on Friday compared to $1,288.79 an oz on Monday.

“Appreciation of the rupee is the only reason for gold’s price fall in Indian markets, as the yellow metal remained range-bound globally. For this week, however, gold is set to remain bearish on indications of recovery in the US economy that will weaken dollar against global major currencies, including the rupee,” said Gnanasekar Thiagarajan, director, Commtrendz Research.

In fact, the rupee strengthened almost equivalent to the fall in gold prices against the dollar. The Indian currency appreciated by 2.08 per cent during the last week to close on Friday at 58.78 against the dollar from the level of 60.03 on Monday.

Thiagarajan predicted gold price to touch Rs 27,000 per 10g immediately to see an upside of 28,700 per 10g thereafter. In dollar terms, however, gold price might see a pullback to $1,245 an oz but would see an upside later to $1,330 an oz. Until now, the Russia –Ukraine rift kept the gold price elevated. Since the issue is gradually settling down, gold might see a downside movement from the current level.

“A bearish trend is prevailing for gold prices. Until now, appreciation in the rupee is the only factor attributable for the fall in gold prices. There is no trigger for its upside. Hence, gold will see a downward move in the near future,” said Naveen Mathur, associate director (Commodities and Currencies), Angel Broking.

Analysts believe the new government might cut import duty, which currently stands at 10 per cent. Also, they renewed hopes for a relaxation in 80:20 rule, which mandates at least 20 per cent supply of imported gold to jewellery exporters. Meanwhile, silver is also likely to follow gold broadly. But, ratio trading favours silver price to go up despite expectations of fall in gold prices. This can be seen from the fact that the extent of fall in gold price last week was not replicated in silver counter.

Silver price jumped 1.20 per cent last week to close at Rs 42,300 a kg in Mumbai on Saturday compared with Rs 41,800 a kg on Monday. In dollar terms, too, silver price moved up by 1.05 per cent to end the week at $19.37 an oz from $19.17 an oz. In fact, financial markets were taken a little bit by surprise this week when 10-year US Treasury yields fell to 2.5 per cent, the lowest in seven months, despite an uptick in wholesale and retail inflation. Bond prices, which move inversely from yields, have been firmer than expected this year.

Other than bond yield, financial markets in the US looks stable at his moment.