India’s struggle to tame its ballooning current account deficit has taken yet another turn. Falling rupee has been giving authorities sleepless nights. And in a bid to discourage goldloving Indians from hoarding the yellow metal, the ReserveBank of India (RBI) on Monday set stringent conditions for importers, linking inward shipments to future exports, a decision that will make gold prices costlier (Read More ).
This came as a bit of respite for the appreciating Indian currency, which tumbled 9 percent in the last one quarter against the US dollar and bonds, which had taken a beating with yileds rising above 8 percent on fear that the central bank may take more measures to prop up the rupee. Both opened on a stronger note on Tuesday, but, domestic gold price shot up by Rs 685 and hit an over one-month high of Rs 28,365 per 10 grams in New Delhi on brisk buying. So, does this indicate that people will get induced to the yellow metal again?
RBI's move could further squeeze imports, but tightness in gold availability is unlikely to lead to more buying, believes Gnanasekar Thiagarajan, Director,Commtrendz Research. But, scrap sales have increased and jewellers have already introduced new schemes to lure people to sell their gold holdings at a small premium and alternative channels are supposedly quite active too, he added.
Kaushal Jaini AVP Research, Dani Investment Services also agrees that though gold supply will now reduce, but it will not encourage more gold buying hence demand will be steady.
Though Praveen Singh,senior analyst - commodities, Sharekhan expects some buying, but highlights that gold prices in Indian Rupee terms have not really fallen much (from Rs 32500 to Rs 27700 currently), so it is hard to argue that Indians would consider gold to be really a bargain at current prices.
“It is all about psychology. For the past twelve years we all have seen prices moving higher every year. That resulted in a certain mind set. However, sharp decline in gold prices this year has shown that the trend might not last long. It is quite possible that Rs 28000 level doesn't look appealing now after having seen prices around Rs 25000.”
Reiterating Gnanasekar’s view he adds we could see scrap supply coming in the market as virtually there is no shortage of gold in India and estimates for scarp sales range from 15000 tonne to 20000 tonne.
Bears haven't spared gold yet!
Meanwhile, international gold prices jumped aided by a slipping US dollar. US gold futures for August delivery rose 3.3 percent, to a four-week high $1,336 registering its best one-day gain since June 2012. Though global gold prices have pierced USD 1300 an ounce and locally also there is some upsurge in price, Thiagarajan’s outlook on gold has not turned positive yet.
“There are still doubts surrounding the withdrawal and tempering of the stimulus program which is key to sustained upside for gold. It has risen now on the back of short-covering. Dollar's strength on the other hand is going to be persistent as the US economy rises and that could be a major barrier in the medium-term for gold,” he explained.
Singh feels that gold bulls are hinging their hopes on continuation of US stimulus and hence the US dollar weakness. But, market needs more factors to take gold higher from current levels on sustainable basis. He is positive on the green back and despite Bernanake’s dovish talks on Fed being accommodative on QE programme, he expects the US central bank to begin tapering from September this year.
Pessimists are expecting the yellow metal to fall to 25000 per 10 gms by 2013 end. According to Gnanasekar, this forecast stands a chance in becoming a reality as the dollar strength is expected to prevail in the coming quarters. "Only a depreciating rupee could prevent gold price from falling to that level. On the contrary if rupee appreciates due to any investment flows that hits, then 25,000 is inevitable, he added.
Continuing the bearish tone, Jaini also adds that this is just a short term bounceback and gold price on the Commex will drop to USD 1100 an ounce and on the
MCX it could be as low as Rs 24,700 per 10 gms. He goes on to say that if the price falls below 24,700 per 10 gms then the next key level on the downside could be 23,000.
Singh who is equally bearish on the yellow metal sees price falling to Rs 23000 (USD 1050) this year and eventually Rs 20000 (USD 900) sometime in next year.
Yes, selling gold is wise!
Gnanasekar advises long-term investors to continue to buy on dips as the global stimulus program could be huge inflationary concern going forward. However, short-term traders can book profits on this rally and even short sell around key resistances with a stop loss.
Singh does not see gold holding above USD 1355 unless the US GDP and employment data turn out to be huge disappointment, so he also suggests selling on rallies.
“In China also the premium in spot market has come down as the metal rallied. Physical demand is strong around USD 1200 level only. This short squeeze might continue until the US GDP data and FOMC meeting due on 31st July, and US non-farm payroll report due on 2nd August,” he added
