MCX Gold June futures fell for a third day, declining to Rs. 28,281, the lowest price since April 2012. Comex Gold June futures sold off sharply today and Gold prices slumped to a fresh four-month low of $1,572 an ounce. MCX Silver July futures slipped to Rs. 53,666 & Comex Silver July Futures declined to $28.475. Gold futures pushed lower in European trading also today as the U.S. dollar rose for a 10th session after the surprise revelation of a $2 billion trading loss by J.P. Morgan Chase on credit derivatives, and that the loss could get worse this quarter or beyond, and also the weaker China data drove investors toward the perceived safe-haven currency. The Dollar Index, a measure against six major counterparts, rose for 9 consecutive days through yesterday, the longest winning streak since August 2008. Gold fell on 7 of these days. Gold & Silver prices in India received support due to the sharp decline in the INR. The rupee plays an important role in determining the landed cost of the dollar- denominated commodities in India such as gold. Weakening in the Indian economic performance, its investment-grade rating & political uncertainty are driving the INR lower & will inversely push Gold Prices up, thereby motivating people to seek gold for a safety. Gold has a strong support at Rs. 28,000 levels & Silver at around Rs. 52,975 (as per current INR /U.S.$ valuations). These recent sharp declines may start triggering some bargain buying from physical traders & investors, though India is now at the fag end of the important wedding season buying spree.
Gold prices have a strong technical support at $1,540 on the downside & should ideally bounce up from this level. Silver has a strong technical support in the $28 to $26.20 range on the downside. Any breach with a sustained momentum below these levels may signal a strong bearish trend for Gold & Silver.
Gold imports by China increased as rising incomes and concerns about inflation boosted purchases. Shipments were 72,617 kilograms in the first two months, compared with 10,564 kilograms a year ago. On the other hand, demand from India has slowed down considerably. There have been a series of distractions hampering demand. Earlier, it was a conscious attempt on part of government aimed towards discouraging consumption by way of increasing levies over and above gold prices. Introduction of additional excise tax in mid-March prompted a majority of Indian jewelers to close for three weeks in protest across the country protesting the harsh moves, hurting demand from the world’s largest gold consumer. Despite the end of strike, demand has not much recovered on account of continuous increase in rupee denominated gold prices buoyed by depreciation in the Indian currency. The physical Gold & Silver buying in Indian markets would likely see recovery from here on and could be accelerated if we see some price corrections in the INR/US$ valuations. India’s decision to remove the controversial excise taxes on gold silver and platinum jewelry should also provide some long-term support for Bullions, especially gold.
The central banks would likely continue to buy about 100 tons of Gold each quarter in 2012. Total investment fell 10% to 1,605 tons last year, but gold bar demand continues to climb by 37% to a record 1,209 tons. MCX Gold trading may see some bottom fishing at lower rates and in addition a weaker INR accelerates the demand for Bullions.