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Spot gold plunged to a six-month low in Zaveri Bazaar here on Thursday, following heavy selling by investors seeking refuge in other asset classes, including equity. Investors’ risk appetite for bullion has been low due to easing geopolitical tensions between Russia and Ukraine and signs of an improvement in the US economy.
Standard gold fell 1.3 per cent to Rs 28,740/10g, the lowest since August 10, 2013. The metal nosedived 4.45 per cent through the week. In London, spot gold fell below $1,300/oz, a level widely termed as average cost of production, and was traded at $1293.09/oz on Thursday. Gold prices fell 3.12 per cent this week, after US Federal Reserve Chairperson Janet Yellen announced the Fed would continue tapering its bond-buying programme.
“The fall in precious metal prices can be attributed to the announcements by the Federal Open Market Committee last week. Additionally, investors’ risk appetite has shifted from gold to equity, as geopolitical tensions have eased. The price fall can also be attributed to appreciation in the rupee against the dollar. All these factors have brought premia in India close to negligible,” said Gnanasekar Thiagarajan, director, Commtrendz Research.
Last week, Yellen announced the unemployment rate in the US was approaching the Federal Reserve’s target of 6.5 per cent, and this had prompted the Fed to for another round of tapering of its monthly bond-purchase programme. The bond purchases, which stood at $85 billion till December 2013 was scaled down by $10 billion each in the last two meetings (in December 2013 and January 2014).
Though inflation remains much below the Fed's target, the unemployment rate is likely to be the trigger for further cuts in stimulus spending. Yellen signalled the Fed would likely increase rates from mid-2015.
Meanwhile, global advisory firms have lowered gold price forecasts. While Goldman Sachs feels this year, the average gold price will be lower at $1,050 an oz, Standard Chartered has cut its forecast eight per cent to $1,225 an oz. According to CPM Group, gold averaged $1,409.43 an oz in 2013, down 15.6 per cent against $1,670.15 an oz in 2012, the first annual decline in the metal's average price in about a decade.
"Gold and silver prices are likely to trade lower, given the trend of declining holdings, the strength in the DX and the mixed global market sentiment," said Naveen Mathur, associate director, Angel Broking.
On Thursday, the rupee halted its four-day rise, falling 0.1 per cent due to dollar purchases by the Reserve Bank of India. The currency touched an intra-day low of 60.26/dollar. In Indian markets, gold prices fell 0.8 per cent on Thursday, despite the rupee's fall. "Appreciation in the rupee against the dollar was a major factor that contributed to gold's fall in India. Going by the ratio, silver has more potential for recovery than gold," said Thiagarajan.
Silver recorded a decline of 0.89 per cent, trading at Rs 43,640/kg on Thursday. In London, it fell 3.46 per cent through the week to $19.63/oz. Crude oil, which moves in a direction opposite to bullion, rose 0.1 per cent to $100.30 a barrel on the New York Mercantile Exchange.
