Yellow metal regains safe-haven status, soars to record high

Lower-than-expected US non-farm payroll data poses risk for the USD, gold comes to rescue

Gold has regained the safe-haven status and entered into a bull phase after months of stagnation, as worse-than-expected US macroeconomic data casts doubt on the economic recovery in the world’s largest economy, prompting investors to seek safety. Prices surged three per cent in the domestic market.

The dismal US jobs report released yesterday morning led traders bet that additional quantitative easing from the Federal Reserve might be just around the corner.

In city’s benchmark Zaveri Bazaar, standard gold on Saturday set a record high at Rs 29,895 per 10 gm. It closed three per cent, or Rs 890, higher compared with the previous day’s close of Rs 29,005. Pure (999 purity) gold, too, moved in tandem to close with a similar gain at Rs 30,030 per 10 gm, against Rs 29,135. Silver followed suit and closed with a gain of two per cent at Rs 54,750 a kg. However, high prices put buyers on the sidelines.

With the lower-than-expected non-farm payroll data presented by the US, investors’ perception has changed from the heavily invested dollar to gold, which anyway has proved as a safe haven option at the time of global crisis. Now, investment is shifting from the greenback to gold.

“As a consequence, the precious metal would continue its upward journey to see $1,700 an oz in near term, translating, thereby, at Rs 31,000 per 10 gm in rupee in local markets,” said Gnanasekar Thiagarajan, director, Commtrendz Research.

Gold futures for August delivery on the Comex division of the New York Mercantile Exchange were up $53.50 at $1,617.70 an oz. Trade ranged between $1,545.50 and $1,619.30 an oz.

Non-farm payrolls in the US grew by just 69,000 last month, falling well below forecasts of 151,000, raising questions about recovery in the world’s largest economy. The unemployment rate rose 0.1 percentage points to 8.2 percent, while the March figures were revised downward to 77,000, from the previously reported 115,000, and payrolls were downgraded to 143,000, from 154,000.

Now, analysts have started advocating that the US would introduce a fresh round of quantitative easing that the Federal Reserve had indicated earlier. The Fed had indicated that additional policy action would only become necessary if the economy worsened, and if inflation seemed likely to remain below its mandate-consistent rate of two per cent over the medium-term.

Monetary accommodation is seen as unequivocally bullish for commodity prices, as extra liquidity tends to weaken the dollar against the large global currencies and create future inflationary risk.

Gold in rupee terms has gained 33.58 per cent in the past year, though the yellow metal shot up a marginal 5.47 per cent in dollar terms in London. Since the rupee recorded a depreciation of 23.97 per cent in the past year, the rise in gold prices in local markets was sharp. In contrast, silver plunged 4.72 per cent in rupee terms to close at Rs 54,750 (on Saturday) in city’s spot market. In dollar terms, however, silver declined by 22.60 per cent to close at $28.53 an oz on Friday.

“The weakening US economy poses a risk to the dollar. Only gold comes to investors’ rescue in case of all other asset classes look down,” said an analyst.

Gold for delivery in August on the Multi Commodity Exchange rallied sharply and set a record high of Rs 30,156 per 10 gm but corrected moderately.

Samson Pasam, senior technical analyst, Angel Commodities, forecasts gold to find its support between Rs 29,680 and Rs 28,620 per 10gm levels and further below strong support between Rs 29,200 and Rs 29,150. He, however, sees resistance between Rs 30,520 and Rs 30,560. Trading consistently above Rs 30,570 levels would further extend the current rally initially towards Rs 30,690 per 10 gm and then, finally towards Rs 31,060 level.