 "Selling pressure to pull down gold further")
Heavy selling pressure emerged in bullion after the dollar index pushed sharply higher to 13-month high on favourable United States unemployment data which indicates a recovery in the world's largest economy.
Bullion markets already factored in the announcement of quantitative easing (QE) announced by the Mario Draghi, president of the European Central Bank (ECB), to bring European Union's economy back on track. ECB's cut in the interest rate to nearly zero, at 0.005% also held negligible impact on gold and silver on Thursday.
While gold for delivery in December fell marginally by $4 to $1266.30 an oz on the Comex, silver followed suit and slumped by $0.074 at $19.115 an oz in Thursday evening trade.
The fall in late Thursday evening trade in global markets showed a similar impact in Indian market as well. Gold for near month delivery on the Multi Commodity Exchange fell to $27361 per 10 grams before a mild recovery to Rs 27400 per 10 grams towards the end of morning session.
"Gold is under severe selling pressure. The metal has really entered into bear phase now due to investors' bullish sentiment towards equity market. Funds are taking money out of commodities to invest in the alternative instruments linked with equity markets. The next resistance level gold can see at $1240 an oz and then $1200 an oz going forward," said Gnanasekar Thiagarajan, Director, Commtrendz Research.
This means, gold has further decline potential of at least 5% from the current level. Noticing the downward sentiment, HSBC on Tuesday forecast gold to move in a range of $1,150 to $1,350 an oz during the rest of 2014, in a market "searching for a new equilibrium" with a number of offsetting factors. It maintained its 2014 average price forecast at $1,292 an oz and listed 2015 and 2016 forecasts of $1,310 and $1,345 an oz, respectively.
Touching this level could see gold price at Rs 26,000 per 10 grams in India. The yellow metal has already declined 5.29% so far this calendar year on weakening investors' interest after the precious metal cloaked a negative return in 2013.
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Analysts believe that India government's measures to restrict gold import to control the current account deficit (CAD) hit the metal hard.
"Gold and silver are likely to trade lower, as growth in the US economy will lead to a decline in investor interest in the precious metal," said Prathamesh Mallya, senior research analyst (non-agri commodities), Angel Broking.
Spot silver prices are trading higher taking cues from positive movement in gold prices and trading at $19.09 an oz. Weakness in the dollar index and technical buying is supporting prices.
However, weakness in the base metals pack is capping the rally. On the MCX, silver prices are trading higher by 0.2% and trading at Rs 41,578 a kg.
Further, The European Central Bank cut interest rates to a record low on Thursday and launched a new scheme to push money into the flagging euro zone economy, thereby addressing the woes of a major consumer and acting as a positive factor.
"When the United States announced QE, analysts feared an inflationary concern. But, that did not happen. Now, there is no such fear even today after the ECB announced QE. More than dollar's strength, it is the euro which is weakening. Hence, dollar's strengthening is quite natural," said Thiagarajan.
At Rs 27600 per 10 gram, gold remained rangebound in spot market here in Zaveri Bazaar.