Gold to remain buoyant for short term on robust Chinese buying

FOMC meeting in the US and monetary policy by the RBI to determine its long term sustenance

Gold prices rose 6 per cent so far this month due to re-emergence of safe haven demand from risk appetite countries including China where consumers parked their large quantum of disposable income ahead of Lunar holiday. Going forward, however, gold price is likely to remain elevated at least until the shadow on economic policy gets cleared in the scheduled meeting of the Federal Open Market Committee (FOMC) on January 28 and 29; and monetary policy announcement by the Reserve Bank of India (RBI) next week.

During the period between January 1 and 25, gold recorded a sharp jump of around 6 per cent from $1,

Gold image via Shutterstock

200 an oz to $1271.16 an oz in London spot market. During the same period, the yellow metal settled at Rs 30,200 per 10 grams from the level of Rs 29134 per 10 grams on January 1, a rise of 3.67 per cent. While the rupee recorded a depreciation of 1.44 per cent during the same period from the level of 61.80 to 62.69 against the dollar, the bullion in local currency term recorded a modest rise compared to that in dollar term.

“This is because of a drastic decline in the premium in India which witnessed a sharp fall from around $150 an oz on January 1 to $117 an oz on Saturday, said a leading bullion dealer in Zaveri Bazaar, India’s largest spot market for precious metals.

Meanwhile, t wo Russian gold miners - Petropavlovsk and Nord Gold - plan to cut production in 2014 as they focus on cost reduction after a slump in the gold price. Petropavlovsk expects its 2014 gold production to decline 16 percent year-on-year to 625,000 troy ounces after it sold high-cost alluvial assets.

A number of gold producers was hit badly by a 28 per cent fall in the price of gold last year - its biggest annual loss in 32 years - prompting miners to cut costs, delay new projects and hedge, selling their production forward.
Miners have set the benchmark cost of production at $1200 an oz which if gold breaches downwards then they will have no option but to cut production.

“Gold price remained high despite low investment demand due to robust Chinese buying. Also, global slide in equities followed by easing dollar index helped investors to seek a safe haven buying in gold which kept the price of the yellow metal up,” said Sugandha Sachdeva, Incharge (metals, energy & currency) Research, Religare Securities Ltd.

Breaching the level of $1287 however will see the price hitting $1325 an oz in international market translating thereby in India at Rs 30500 – 30600 per 10 grams level in futures market on the Multi Commodity Exchange.
The bullion, however, will see a strong resistance at $1275 an oz in international market and Rs 29600 per 10 grams on the MCX, she added.

Meanwhile, a recent report by the global consultancy Thomson Reuters GFMS forecast, gold price to breach $1330 an oz level this quarter.