Record rupee plunge pushes gold to new high

Lower expectation of US tapering in expansion programme, tension in Arab world contribute, as do recent govt decisions

Standard gold hit a lifetime’s high at the popular Zaveri Bazaar here on Tuesday, following a sharp depreciation in the rupee against the dollar.

It jumped 2.6 per cent or Rs 820 to surpass its previous record of Rs 32,500 for 10g set on November 26 last year and hit a new all-time high of Rs 32,585 per 10g on Tuesday. Silver followed, gaining 3.5 per cent on Tuesday to close in spot trade at Rs 56,670 a kg, a level not seen after February 18 this year.

“Gold prices zoomed primarily on the back of a tumbling domestic currency. The other crucial factor which boosted the rally at COMEX was the geopolitical tension in the Middle East that raised the demand for safe haven assets such as gold,” said Sugandha Sachdeva, assistant vice–president (metals, energy and currency research), Religare Securities.

Dampened expectations of the US Federal Reserve withdrawing its monetary stimulus in the light of downbeat new home sales and durable goods data also gave reason for players to shift towards bullion. The markets are keenly awaiting the jobs data, due for release on September 6. This is being considered the most important data for gauging if the Fed will start dialling down its monetary easing programme next month.

“As gold prices have surpassed the previous high and traversed into uncharted territory, the short-term momentum continues to be supportive for bulls. Also, in the wake of a tumbling currency, the rally can stretch towards Rs 35,000/10g at domestic bourses in the immediate near term,” said Sachdeva. At COMEX, $1,425 an ounce is considered a strong barrier ahead, which needs to be crossed for another leg of upside momentum in gold.

The yellow metal has gained a staggering 29.7 per cent since its recent low of Rs 25,130 for 10g on June 26. While a major portion of the price increase can be attributed to the rupee’s drastic depreciation, the government’s frequent import duty rises have also contributed significantly. On August 14, the government raised import duty by two per cent on gold to 10 per cent.

“On the MCX, a weaker home currency due to the widening fiscal deficit is expected to propel crude higher. Crude oil could test Rs 7,200 (a barrel) in the near term; Rs 6,940 remains a critical breakout level, above which the uptrend in oil could get stronger momentum. On the NYMEX, $108 remains a critical resistance and a breach below $103.5 could lead to reversal. Base metals traded highly volatile on the domestic front, backed by the sharp moves in the rupee. Metals corrected in the late evening session but recovered. The overall bias in gradually turning weak and rallies will be opportunities to exit,” said Kishore Narne, associate director, Motilal Oswal Commodities Broker.

In markets abroad, spot gold gained just 13.8 per cent to $1,404.7. But, the rupee’s 11.4 per cent decline to 66.24 against the dollar has pushed gold prices to set a new record. The rise in precious metals has spilled over to other global commodities, too. Since gold’s recent low, traders in futures markets have been sceptical, with daily volumes on the MCX down 60 per cent from Rs 23,050 crore on June 28 to Rs 9,241 crore on August 23. Similarly, open interest has declined 9.7 per cent from15,507 lots to 13,998 lots.