Gold, silver decline on global cues

Standard gold closed at Rs 27,500 per 10g on Thursday to trade at a level not seen since Feb 4

The price of gold declined by nearly two per cent on Thursday, on global cues, as investors showed more confidence in the US treasury after the United States Federal Reserve raised the interest rate by  25 basis points, first in 2016, and sounded more hawkish stance for 2017.

Standard gold in the popular Zaveri Bazaar closed at Rs 27,500 per 10g on Thursday to trade at the level not seen since February 4 this year. Silver also followed suit and closed with a decline of nearly 4 per cent or Rs 1410 to Rs 40,200 a kg.

US Fed's latest move was a repeat of last year. But, the scenario is totally different this year as the Fed was more confident for three three increases in 2017. Thus, the US Fed was more hawkish for 2017 as seen in its chair Janet Yellen's latest speech as compared to confusing tone and hence, the economic observation was quite ambiguous last year.

 

"As against pre-conditions set last year for increase in rates, the US Fed put no such conditions this year for increasing rates. So the market is now clear that US Fed would continue to hike interest rates without doubt. Hence, precious metals are going to remain under pressure this year with gold to touch $1050 an oz translating thereby, to Rs 26,000 per 10g and silver to Rs 39,000 a kg in near term in India," said Gnanasekar Thiagarajan, Director, Commtrendz Research.

The yellow metal in London was trading at $1127.95 an oz, a sharp decline of nearly 3 per cent from early Wednesday (pre-US Fed's interest rate hike announcement) of $1158.54 an oz. On the Multi Commodity, the near month contract was trading lower by 1.5 per cent at Rs 27180 per 10g in early evening trade.

Gold dropped to its lowest in over 10 months on Thursday as the dollar surged to its highest in 14 years after the US Federal Reserve raised interest rates for the first time in a year and signaled more rate hikes in 2017.

"The US Fed delivered something that was unpredictable and which has not been the trend over the course of the year (Brexit and US election). From here on, gold has been gripped under the bear strength and with the US economic projections improving, it is tough for gold prices to sustain higher levels. Until there isn't a major financial catastrophic or a fiscal stimulus (can't rule that out with the new US administration) or a geo-political tension, metals would remain pressured. Support from here on is $1120 and $1,070 and in Rs 26,500 to Rs 25,000 per 10g. But these low levels could attract some fresh regional specific physical buying too. With gold monetization drive, it won't be so easy for the Indian physical buying to support the prices here on even when Indians are entering the wedding season," said Prithviraj Kothari, Managing Director of RiddiSiddhi Bullions Ltd. (RSBL)

During interest rate hike, however, historical evidence proves a proportionate increase in inflation. Hence, consumers might look or gold as a hedge against inflation. But before that to happen, gold would see a sharp decline, said Thiagarajan.

"Finally the d-day is done with and the US Federal Reserve has raised the rates and hinted for three rate hikes in 2017. This will exert downside pressure on gold prices," said Prathamesh Mallya, Chief Manager (Non-Agro Commodities & Currency), Angel Commodities Broking Pvt. Ltd.