Gold to remain bullish on safe haven buying
Hit 2-month high on Friday, with an appreciating dollar and geopolitical tension
Gold is likely to remain bullish in the short to medium term, following safe haven buying from investors who pulled back from global equity markets to park their funds for assured returns in the yellow metal.
Bullion normally sparks at times of geopolitical tension and is considered a safe bet against inflation. It rose sharply over the past week due to weakness in the dollar, following investors’ renewed buying interest after tension erupted between North Korea and the United States.
Standard gold at the popular Zaveri Bazaar here jumped by 0.5 per cent or ~140 to close at ~29,210 per 10g on Friday, a 2.5 per cent gain during the week. Rising prices have driven buyers out of the physical markets, preferring to wait and watch before placing new orders.
Gold prices in India broadly followed the global markets, with its price up 0.7 per cent at $1,286.07 an oz in London, the metal’s highest level since June 8. Spot gold rose 1.3 per cent on Thursday, the biggest daily gain since mid-May. For delivery in December, the US gold futures climbed one per cent to $1,291.8 an oz. “Tension between the US and North Korea remains high, which will gold prices upwards. But, investors should trade in gold with caution,” said Prathamesh Mallya, a chief analyst at Angel Commodities Broking.
Gold traded higher by 0.4 per cent on Friday, at $1,287 an oz, translating to a 0.2 per cent increase on the Multi Commodity Exchange (MCX) here, with the contract for delivery in the near month up to ~29,230 per 10g. US and Korea tension continues to be centre-stage, while global equities have fallen for four consecutive sessions, creating a safety net for the precious metals pack, said Mallya.
In sum, investors’ risk appetite has changed from equities to the precious metal, evident from a fifth day’s decline of the benchmark Sensex and Nifty in India on Friday. Fearing a dollar pullback, the rupee depreciated by nearly one per cent over the week, to close at 64.14 against the dollar. WTI oil prices are trading lower by 0.5 per cent at $48.34 a barrel, while MCX oil prices are trading lower by 0.6 percent at ~3,108 a barrel. Oil prices are falling after the International Energy Agency said market balancing will take time, despite strong demand growth.
Physical demand of gold has also been lower due to the levy of a three per cent goods and services tax (GST), in addition to 10 per cent import duty. Gold has become costlier with GST, the overall levy now higher by 0.75 per cent.
“Physical demand has declined tremendously since the implementation of GST from July 1. With the festive season coming in, physical demand is expected to rebound in the near term,” said Ketan Shroff, Director, India Bullion and Jewellers Association.
While announcing the demand trend early this month, the World Gold Council estimated India’s gold demand to remain range-bound, with an upward bias. Even with a low range of 650-750 tonnes, India’s demand has to be over 350 tonnes in the second half, from 298.4 tonnes in the first half of 2017, Somasundaram P R, the Council’s head for India had said.