Bullion turnover in the country’s largest commodity futures bourse, the Multi Commodity Exchange (MCX), declined nearly 40 per cent on Tuesday due to traders’ reluctance over unwinding their long-term position in supply-scarce commodities. The falling trend, however has been on since the beginning of this week, as participants stayed away from entering fresh contracts.
Total turnover in gold declined to Rs 7,611.3 crore on Tuesday as compared to Rs 12,871.3 crore during the same day last week. In the first two days of the current week, the turnover declined 28 per cent to Rs 14,376.2 crore from Rs 20,012.6 crore.
Similarly, the total trade value in silver dived 39 per cent to Rs 12,152.3 crore on Tuesday from Rs 20,088.7 crore on the same day last year. During the first two days this week, total trade value plunged 27.5 per cent from Rs 33,183.4 to Rs 24,057.2 crore. Following the move in the futures market, turnover of the benchmark gold exchange traded fund (ETF) declined to Rs 4.8 crore yesterday, as compared to Rs 16.9 crore the same day last week. It was Rs 11.3 crore on Monday and Rs 9.6 crore on Tuesday.
“Traders are skeptical about the current strength in gold prices, on which they await a major correction like crude oil last year. Therefore, they are unwinding their position today to book afresh on low prices,” said Gnanasekar Thiagarajan, Director of Commtrendz Research, a Mumbai-based commodity broking firm. Today, the euro slipped from one-week highs against the dollar, after short-covering triggered by Portugal’s successful debt auction yesterday ran its course, and traders looked to debt sales by Spain and Italy. The strong demand for Portugal’s bond sale eased concern over the debt crisis in Europe. Investors, meanwhile, await interest rate decisions and comments from the European Central Bank and the Bank of England for taking a short-term call on gold and silver prices.
Prices to rise again
However, any expected correction may be short-lived. GFMS, the global consultancy firm, believes the economic crisis of small European countries such as Greece or Ireland has the potential to destabilise the euro. The crisis could easily cross the Atlantic as America’s quantitative easing steams on. As a consequence, GFMS believes gold prices will rise to hit $1,500 an oz in the medium term and $1,600 an oz towards the end of this (calendar) year. On hitting these levels globally, gold will translate in India at Rs 25,000 per 10g and Rs 27,000 per 10g, respectively, assuming the rupee remains at the same level of Rs 45.18 against the dollar.
Gold offered nearly 23 per cent return in rupee terms last year and silver 71.5 per cent.
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While announcing the price forecast in Toronto, Philip Klapwijk, chairman of the independent metals research consultancy, said, “Investment demand played a critical role last year in bringing about a series of record price highs and the 26 per cent jump in the annual average. These elevated levels of interest were in turn ascribed to a raft of factors, most notable of which initially were European sovereign debt concerns and, arguably, rising concern about fiat currencies in general.
Barclays Capital, another independent global research firm, forecast the gold price to average at $1,445 in 2011, a significant rise from the average price of $1,228 in 2010.
“The medium-term price trend is bullish. But how much investors and fund houses would be keen on fresh investment in gold would be interesting to see,” said Thiagarajan.
The consultancy is, however, not expecting any real support for further price gains to come from jewellery demand, which is expected to fall by seven per cent in the first half. The two obvious negatives for the price were mine production and producer de-hedging. The former was estimated to have risen by almost three per cent last year, chiefly as new projects came on stream or ramped up their output, with further gains expected for the first half of 2011.
De-hedging meanwhile was estimated to have fallen by over 40 per cent last year, leaving the outstanding year-end producer book at trivial levels of under 100 tonnes.