Gold nosedives, falls below Rs 49,000 as investors rush to book profit; experts see further weakness

Representative Image

Representative Image

Gold prices tanked to settle at Rs 48,818 per 10 gram on January 8 as participants increased their short position as seen by the open interest. The precious metal ended the week with a loss of Rs 1,417 or 2.82 percent for the week.

The yellow metal traded lower, tracking gains in the dollar, higher treasury yields, global equity markets trading at a lifetime high and easing of political risk as Donald Trump agreed to an orderly transition of power.

In the retail market, the bullion closed at Rs 50,421 per gram on January 8 down 1.23 percent on the rupee depreciation and weak global cues but gained Rs 123 or 0.25 percent during the week. The premium charged by dealers over official domestic price fell to $1.5 per troy ounce this week from $2.5 last week.

The rate of 10 gram 22-carat gold in Mumbai was Rs 46,186 plus 3 percent GST, while 24-carat 10 gram was Rs 50,421 plus GST. The 18-carat gold quoted at Rs 37,816 plus GST in the retail market.

The CFTC data showed that money managers increased net-long positions to 16 weeks high by 15,268 lots last week.

The US dollar settled modestly higher at 90.02, or up 0.26 percent, on January 8 against a basket of six currencies. The greenback gained 0.14 percent during the week on safe-haven buying.

Gold holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund rose by 11.38 tonnes to 1,182.11 tonnes on increased ETF inflows.

MCX Bulldesk plummets 778 points, or 4.88 percent to end at 15,175. The index tracks the real-time performance of MCX Gold and MCX Silver futures.

“Gold prices traded lower with spot gold prices at COMEX fell by 2.60 percent to $1,849 per ounce suffering the worst weekly decline since November 2020. Gold prices at MCX shed more than 2 percent fell below Rs 49,000 per 10 grams as a weaker rupee limited downside during the week. The spot rupee depreciated by 0.24 percent against the dollar for the week,” said Tapan Patel- Senior Analyst (Commodities), HDFC securities.

“Gold prices traded under pressure with recovery in US long term bond yields. The 10-year US treasury yields hit the March 2020 highs, which also triggered short unwinding in the dollar. The traders and investors rushed to book profits in gold on risk-on sentiments with buying in the dollar index. Gold prices declined with positive investment sentiments with a strong rally in equity indices,” Patel noted.

The US presidential election drama ended with Democrats taking control of the Senate paving the way to US President Joe Biden to peruse his agenda. The expectations of higher stimulus may eventually support gold prices with dollar weakness. The current selling in gold prices is expected to be short-lived with bullish long-term trend, he said.

Nish Bhatt, Founder & CEO, Millwood Kane International, said, “Gold has been trading in a range of Rs 48,000-52,000 for some time now. Gold has been trading sideways due to the strengthening of the dollar and higher bond yields in the US, which makes buying gold expensive for international investors.”

“Going forward, a proper handover of the regime in the US with minimum friction, additional fiscal stimulus by the incoming administration at the White House, global economic recovery, and the efficacy of the vaccination process will guide prices of gold”, said Bhatt.

The gold/silver ratio stands at 72.75 to 1, which means the number of silver ounces required to buy one ounce of gold. The increase in ratio indicates that gold has outperformed silver.

Silver prices crashed Rs 6,112 or 8.74 percent to close at Rs 63,850 per kg on the MCX.

In the futures market, the gold rate touched an intraday high of Rs 50,799 and an intraday low of Rs 48,818 on MCX. For the February series, the yellow metal touched a low of Rs 41,560 and a high of Rs 57,100.

Gold futures for February delivery slumped Rs 2,086, or 4.10 percent, to settle at Rs 48,818 per 10 gram with a business turnover of 8,999 lots. The same for April declined Rs 2,077, or 4.08 percent, at Rs 48,863 on a business turnover of 5,733 lots.

The value of the February and April’s contracts traded on January 8 was Rs 9,851.95 crore and Rs 685.67 crore, respectively.

Similarly, Gold Mini contract for February nosedive Rs 1,958, or 3.85 percent, to shut at Rs 48,960 on a business turnover of 15,427 lots.

“We expect gold prices to trade sideways to down for short term with Comex spot gold having resistance near $1,900 per ounce and support at $1,820 per ounce. At MCX, February gold prices have near term support at Rs 48,200 per 10 grams and resistance at Rs 50,200 per 10 gram,” Patel said.

Kshitij Purohit, Product Manager, Currency & Commodities, CapitalVia Global Research Limited, said on MCX, gold futures fell as much as Rs 2,000 to Rs 48,818 per 10 gram as a selloff in the global gold price. The fall by 4 percent in a day was because of the rise in the dollar index. “With the new government almost confirmed in the US and hopes of large stimulus measures slumps the gold price, US Treasury yields and a climb in the equities toward its all-time closing high, which weighed down gold prices,” Purohit said. “The dollar has also rebounded and investors are running to book profits. The short-term range is Rs 52,000 to Rs 48,500 and its retracement zone at Rs 51,800-52,000 is resistance.”

Spot gold settled with a loss of $64.45 at $1,849.44 an ounce on Friday in London trading.

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