Gold correction on US-China patch up talks only for short term: Analysts

Support is seen at $1,365-1,375 levels, at which the metal delivered 5X returns over a five-year period

With the United States and China agreeing to hold talks on tariff issues, the bullion market heaved a sigh of relief on Monday, as prices corrected by about 1.5 per cent in Mumbai’s spot market. In the city's Zaveri Bazar, the precious metal shed Rs 451 to close at Rs 33,538 per 10 grams. In fact, gold was down nearly 1.5 per cent in the global markets as well, and was tradin at $1,388 an ounce.

Last Saturday, the US and Chinese premiers met on the sidelines of the G-20 meeting in Japan and decided to hold discussions to sort out tariff issues. The development had an impact on gold prices.

From a level of Rs 34,450 early last week, the metal shed 2.65 per cent in a matter of just five days. With prices ruling high, demand for the commodity started drying up in India. Gold was selling at a discount of as much as 1.2 per cent of the cost of import. However experts don’t see prices falling much further.

“this is a short-term correction at most. I am expecting gold to find a strong support around $1,365-1,375 levels, and on MCX futures it could fall to Rs 33,000 per 10 gram from the current Rs 33,750,” said Gnanasekar T, Director of Commtrendz Research. He added that at the level of $1,365, the returns from gold over a five-year period were a staggering five-fold, so that price point would definitely serve as a strong prop.

The metal has rallied 11 per cent globally the past one month, and all categories of investors and traders turned bullish after the US Federal Reserve said in its last meeting that the rate cut option was on table. The rally strengthened when the market was expecting the trade war to aggravate, following the US decision to raise tariffs on Chinese goods and on those of other nations including India.

High US tariffs on Chinese and other imported goods raised fears of a slowdown in economy as there were retaliatory moves. In the past five years gold prices were returning to a high level around $1,365 per ounce and only late last month the metal decisively crossed that level to a six-year high of $1,439.

The price in India has also corrected in line with the global trend. However, silver prices have still not changed meaningfully. The gold:silver ratio hit a 26-year high to reach 26 this morning but now it is little above 90, indicating silver saw little fall compared to gold today. Silver has npt performed for the past several months as compared to gold, and its subdued price resulted in ratio going high.

The ratio measures comparative price movement of gold versus silver and indicate how many ounces of silver can be bought with one ounce of gold.