Gold falls to 18-week low

Traders continue sell-off on margin pressure from other asset classes, trend may go on for some time.

Gold continued its downward journey and slumped to a four-and-a-half-month low on Friday in early London trade due to heavy selling pressure by speculators, in line with the meltdown in equity markets.

The yellow metal slumped to trade at $1,681.97 an oz in early afternoon trade in London but recovered to trade later at $1,694 an oz, a decline of 2.75 per cent from the previous day's $1,740.13 an oz. Silver fell to $32.30 an oz and gained a bit later to trade at $32.67 an oz, a seven-month low.

Gnanasekar Thiagarajan, Director of Commtrendz Research, feels the fall in gold prices is because of appreciation in the dollar. Investors have started selling their safe haven commodity, gold, to cover part of their mark-to-market losses (writing down the value to current amrket levels) in other asset classes, in the wake of falling global equity and currency markets.

Recently, Marc Faber, global investment analyst and author of 'The Gloom, Boom & Doom' report, had said, "The gold price is extremely overbought and could easily drop toward the 200-day moving average - that is, between $1,500 and $1,600 an oz."

The decline continued through this week, with the price down by 6.2 per cent since the beginning of the week at $1,803.63 an oz last Tuesday. In rupee terms, however, the depreciation in our currency has arrested the extent of fall. Gold has a recorded a fall of 2.6 per cent so far this week, to close on Friday at Rs 27,475 per 10g from a high of Rs 28,210 per 10g on Tuesday.

"This quantum of severe fall have been recorded for the first time in almost 10 years. Hence, this is a good opportunity for buyers who missed the earlier bus to make their portfolio balanced across all investment class. They can book this time, given that the long term fundamentals remain bullish," Thiagarajan said.

Gold sellers have started queuing before jewellery shops for selling to cover their loss in the equity market. Buyers remained totally absent in the current falling market, while sellers are rushing to the jewellery shop under margin pressure, said Suresh Hundia, director, Bombay Bullion Association.

At the Multi Commodity Exchange, gold for delivery in October tumbled by Rs 554 or 1.98 per cent to Rs 27,361 per 10g. The metal for delivery in December fell by Rs 547 or 1.94 per cent to Rs 27,708 per 10g in early evening trade. Silver fell Rs 6,530 or over 10 per cent to Rs 56,875 per kg in the physical market on Friday, its biggest fall in three months, due to slackened demand at the prevailing high levels, amid a bearish global trend.

Naveen Mathur, associate director of Angel Broking, said, "Precious metal prices are falling because of global downward economic sentiment, alongwith margin pressure in other asset classes."