Gold, silver may continue to slide in short term, 2-3% decline likely

Gold extended its downturn in the physical markets in Mumbai on Saturday

Gold prices are likely to remain under pressure in the short term with a possible decline of 2-3 per cent as investors look to cover margin calls in other asset classes, such as equities, metals, energy, and currencies, amid a global market sell-off triggered by the spread of coronavirus.

Most global stock markets suffered their worst week since the financial crisis of 2008. The Sensex ended the week with a 7 per cent loss, with about Rs 12 trillion of investor wealth being wiped off. On Friday, the Sensex plunged 1,448 points, or 3.6 per cent, prompting gold and silver investors to cash out to cover the losses in other assets classes.

Navneet Damani, vice-president, Motilal Oswal Financial Services, forecasts gold prices to decline by about Rs 1,000 per 10 gm to Rs 40,400 next week. 

Gold futures for delivery in April closed at Rs 41,300 per 10 gm on Friday, a decline of 2.56 per cent from the previous day. Silver was the bigger loser as it plunged 5.65 per cent to close at Rs 44,066 a kg for delivery in May. Both precious metals followed the decline in their prices in the international markets.

Gold extended its decline in the physical markets in Mumbai on Saturday following global cues. 

Standard gold in the benchmark Zaveri Bazaar declined by a marginal 0.2 per cent on Friday to close the week at Rs 42,354 per 10g, after a spike of over 10 per cent since the coronavirus outbreak in China came to light in early January. 

On Saturday, it was trading at Rs 41,450, a more than 2 per cent decline from its close the previous day. 

With consumers staying away from fresh purchases amid high price volatility, jewellery retailers are awaiting new orders. “Consumers are in the wait-and-watch mode for fresh purchases as they expect gold prices to decline further,” said Kumar Jain, director, Umedmal Tilokchand Zaveri, a bullion dealer and jewellery retailer in Zaveri Bazaar.

Vishal Wagh, research head at Bonanza Portfolio, said gold might open subdued on Monday, but its impact in India would be lesser than other markets owing to depreciation in the rupee’s value against the dollar.

Long-term fundamentals, however, remain strong for gold as the global economic slowdown has raised the bullion’s safe haven appeal. Countries like China and Japan have already announced their economic stimulus, which could start a fresh round of interest rate cuts across the world. India is also planning to announce an economic stimulus.

“Gold prices may see $1,525-40 an oz next week to get its fresh support. Once coronavirus is contained, demand for gold will bounce back. We see its prices to again hit $1,680 an oz and crossing this level to $1,730 in the medium term. In the rupee term, gold may first slip to Rs 40,400 per 10 gm before bouncing back to Rs 44,000 per 10 gm in the medium term,” said Wagh.

Analysts bet that the US Federal Reserve would cut interest rates as soon as next month to cushion the economy from the virus’ impact. Lower interest rates reduce the opportunity cost of holding non-yielding bullion.

Silver generally follows gold, and its prices may decline to test Rs 42,500 a kg next week before recovering to Rs 46,000 a kg on strong fundamentals, analysts said.