Fed's QE3 withdrawal threat pulls bullion to multi-month low

Platinum becomes more attractive with sales doubling month-on-month since January

With the US Federal Reserve having signalled withdrawal of the third round of quantitative easing (QE3), precious metals fell steadily to hit multi-month lows in global markets today. While gold’s falling spree took it to an eight-month low, silver and platinum plunged to six-month and one-month lows today, respectively. In the domestic market, too, the repercussion was proportionately severe with gold and silver hitting seven-month and six-month lows, respectively.

Gold prices in Mumbai’s popular Zaveri Bazaar fell 0.87 per cent today after hitting the recent low the previous day. Standard gold closed in the spot physical market at Rs 29,220 per 10g. Silver, however, gained Rs 1.72 per cent from the previous day, but remained muted at Rs 54,735 a kg. This has suddenly made platinum attractive as it traded at Rs 3,140 a gram on the National Spot Exchange.

The US Fed, in its efforts to boost growth, announced addition of about $45 billion of treasuries a month to the $40 billion mortgage debt it’s purchasing, effectively absorbing about 90 per cent of net new dollar-denominated fixed-income assets. The liquidity proposed to be pumped into the system would have revived the country’s economy from default.

“Spot gold prices are trading 0.3 per cent higher on Thursday due to short covering by the market participants after a sharp fall yesterday The precious metal traded in the negative territory in early part of the day due to worries that the US Fed might discontinue the monthly bond buying programme of the nation. This created risk aversion and exerted downside pressure on gold prices. Strength in the DX also acted as a bearish factor for gold prices,” said Nalini Rao, senior research analyst with Angel Broking.

In the domestic market, gold on the Multi Commodity Exchange (MCX) was quoted 0.3 per cent lower taking cues from the fall in the global markets. However, depreciation in the rupee cushioned the fall in the MCX gold prices. Rupee depreciated 0.76 per cent or 41 paise against the US dollar to close at 54.48 on Thursday.

Spot silver prices are also trading in the negative terrain, down 0.2 per cent. Weakness in the base metal pack, along with strength in the DX, are also acting as bearish factors for spot silver prices. In the domestic market, silver prices on MCX are trading lower, tracking the fall in spot silver prices.

While gold price hit eight-month low in the global markets, silver and platinum fell to their respective nine-month and five-month lows, respectively. In the domestic market, too, gold and silver closed today with a decline to hit levels which they had not seen since July last year.

“Our platinum sales doubled in January and the same trend continued in February as well due to the metal’s aspirational value and being comparable to gold. A number of consumers, however, awaited its price to fall. This dip in price would lead them to buy platinum over gold,” said Vijay Jain, chief executive officer of Orra brand jewellery retailer.

Several Fed officials said the central bank should be prepared to vary the pace of the asset-purchase plan depending on the outlook or how the programme was working. If Fed withdraws QE in the coming meeting, it will drain liquidity out of market and it can cause selling across the counter, which is already there.

Meanwhile, physical purchases have started drying up gradually. In continuation with the past trends when buyers postpone fresh purchase in a price falling spree, gold sales by retail bullion dealers plunged 20-25 per cent today on customers staying away from fresh orders amid expectations of further price decline.

A set of bullion dealers, who borrowed working capital in rupee terms for repayment only after selling of ornaments, got stuck in this falling market. According to Ketan Shroff, director, Penta Gold, a Mumbai-based bullion dealer, there are around 15 per cent sales happening through this type.

Echoing similar response, Aneesh Jain, director of Jugraj Kantilal and Co, also a bullion dealer in the city, said: “Consumers are awaiting gold to fall below Rs 28500 per 10g level for placing fresh orders.”