Gold to trade in narrow range on lack of supportive fundamentals

In dollar terms, gold prices fell by 5.3% to close the week at $1,403 an oz from the level of $1,483 an oz on April 12

Gold is likely to trade in a narrow range this week due to the absence of major supporting fundamentals. While strengthening of the rupee against the dollar could cap the yellow metal’s upward march, the bullion’s fading reputation as a safe investment option may restrict its fall.

The bullion remained highly volatile during the last week with the drastic decline in the first half followed by a moderate recovery in the second. Gold initially declined to the level of Rs 25,680 for 10 grams in physical market on Wednesday, a decline of over 11 per cent in the first three days and the steepest in the last 12 years over such a short period.

However, the metal received overwhelming support from physical buyers and stockists from this lower level, which was not seen in the last couple of years, resulting into price surging to Rs 26,260 for 10 grams in Mumbai’s popular Zaveri Bazaar on Saturday.

The yellow metal recorded a decline of around 25 per cent since its peak at Rs 32,500 per 10 grams late last year.

“Supportive fundamentals started going away towards the end of last week, which is set to continue this week as well. There has been no major drawdown in euro zone economies after Cyprus feared to sell 14 tonnes of gold, the move was expected to follow by other euro zone countries as well from protecting their economies from bankruptcy,” said Naveen Mathur, director of commodities and currencies at Angel Broking, a Mumbai based broking firm.

On the domestic front, however, both individual consumers and stockists are awaiting a lean manufacturing season ahead. While jewellers have already prepared their ornaments for selling in the upcoming wedding season, the absence of any monsoon forecast for the 2013 season has helped farmers stay away from fresh decisions.

On the Multi Commodity Exch-ange, the near month contract witnessed a steep 8.4 per cent decline during the last week to close at Rs 25,798 for 10 grams after hitting the lows of Rs 25,634 for 10 grams early last week.

The overall trend still continues to remain bearish on selling pressure in bullions across the world. Last week, gold on the spot as well as the future market saw a drastic fall due to a massive gold exchange traded funds (ETF) sell off, coupled with a 400-tonne liquidation of gold on the futures market internationally. The biggest selling was witnessed in the ETF when the benchmark SPDR Gold Trust recorded a decline; it dropped by 0.2 per cent to 1,132.99 tonnes last week, extending the lowest level since April 2010.

According to Ajay Kedia, managing director of Kedia Commodities, a city-based broking firm, gold price may hover around the lower level to find a strong support at Rs 24,500 for 10 grams on the domestic market in coming weeks.  After a drastic fall in gold prices last week, retail buying saw an increase as individuals wanted to take advantage of the opportunity and heavy buying was seen in Mumbai. “We expect gold to trade more on the weaker to sideways next week on bearish fundamentals,” Kedia added. In dollar terms, gold prices fell by 5.3 per cent to close the week at $1,403 an oz from the level of $1,483 an oz on April 12. During the week, the yellow metal fell as low as $1,347.95 an oz.