Gold may continue its downward march on liquidation by speculators because of deepening global financial crisis. The multi-asset sell-off across all classes is set to put pressure on the yellow metal as traders have lost faith in gold as a hedge against inflation.
Last fortnight’s volatility has shaken investors’ confidence on gold, which has been considered as a hedge against weakening global financial markets. Of late, gold’s status as a save-haven investment has taken a toll.
Prices of the yellow metal may decline by 2-3 per cent by Diwali, following fresh selling pressure across all asset classes in the backdrop of the worsening financial market crisis.
Currently trading at $790 an ounce, the yellow metal may hit the key support level of $770 and rebound on buying by funds. But absence of buyers at this level may pull the price down again to $736 in the near term, possibly within a month.
Analysts believe that traders, inherently, resume fresh infusion of funds into the yellow metal market when prices go down. Hence, at $770, gold would also attract some investors’ interest, which may ultimately take the price up to $810. On breaching this resistance level, gold may touch $845, according to Ashok Mittal, director, Karvy Forex and Currencies.
Jayant Manglik, the head of Religare Commodities, however, sees prices in the domestic market largely reflecting the movement of the rupee. Although, it is hard to speculate anything because of huge volatility in the rupee value against the dollar, gold in the domestic market may touch Rs 12,000 per 10 grams if the current sell-off continues, Manglik added.
Last week, gold declined to a one-month low on speculation that investors will sell the precious metal to cover losses in other markets. According to a report by Angel Broking, “Investors’ confidence is still very low and with the equities market witnessing a free fall in the past weeks, long positions in gold is being liquidated to meet margin calls.”
With global equities and financial markets still in pain, those holding long positions in gold have been squaring them off over the past few days. Also, the dollar is still showing signs of strength on the back of a weakness in the euro. Declining crude oil prices are also expected to weigh on gold prices in coming weeks.
