Safe haven interest to keep precious metals firm
Apr 10 2017
The US missile strike on Syria saw gold gaining more than $20 per ounce in a day
In the past two months, precious metals have seen considerable volatility. At the end of January, gold was trading at $1,210 per ounce. The market has been uncertain whether the Donald Trump administration in the US will be able to fulfill the promises it had made on fiscal spending and tax cuts and this provided considerable support to precious metals, said Himanshu Gupta, chief market strategist, Karvy Comtrade.
By February-end, gold prices moved up to $1,250 per ounce. But speculations around US Federal Reserve’s rate hike before the mid-March FOMC meet once again pulled down prices and gold fell to $1,195 per ounce in the first half of March. The less hawkish comments made by the US Fed on rate hike during FOMC meet once again increased investment demand for precious metals.
Meanwhile, inflation in the US has started picking up and the market realised that despite interest rate hike, real interest rates are going to be much lower. Increased fiscal spending too will lead to inflation. Gold prices started rebounding and by the first week of April recovered to $1,265 per ounce.
In the domestic market too, gold prices followed a similar trend, but a stronger rupee capped the gains. The rupee, which stood at 67.86 against the dollar moved up to 64.18 by first week of April.
At the end of January, gold prices in the Multi Commodity Exchange were trading at Rs 28,950 per 10 gm. By February-end, prices moved up to Rs 29,700 per 10 gm, only to correct to Rs 27,980 per 10 gm by mid-March. The recovery post-FOMC meet saw gold prices returning to Rs 28,850 per 10 gm.
In case of silver, prices in the international market stood at $17.53 per ounce at the end of January. They went up to $18.48 per ounce by the end of February, fell to $16.8 per ounce in March and have recovered to $18.48 per ounce. Silver in the domestic market too moved up from Rs 41,911 per kg at the end of January to Rs 43,990 per kg in February, corrected to Rs 39,800 per kg and then recovered to Rs 42,800 per kg.
Meanwhile, the US missile strike on Syria last week saw gold prices gain more than $20 per ounce in a day. “The strike has triggered safe haven interest in precious metals. Counter attacks or further escalation of the tension will keep gold prices up,” said Gupta.
Moreover, the elections in France, Germany and the Netherlands and referendum in Scotland will add to the uncertainties in the region in 2017. These uncertainties can further fuel safe haven buying in precious metals in the coming quarters, feels Gupta.
This interest has been evident from the net-long positions in gold held by hedge funds. “The CFTC (commodity futures trading commission) report indicates that speculative activity in gold has been on the rise for most of March. The net longs in gold have increased by 49,315 contracts to 99,150 contracts when compared with March 14, 2017, when it was around 48,935 net longs.
“In case of silver, the CFTC report indicated that net longs in silver has increased by 13,765 contracts to 81,601 contracts in the same timeframe as mentioned for gold,” said Prathamesh Mallya, chief manager, non-agro commodities and currencies, Angel Commodities.
“While gold has support around $1,230 and $1,220, prices can move up to $1,300. In the next two quarters, gold is likely to go up to $1,450 or $1,500. Silver has chances of moving towards $19 and $23 per ounce. If so, in the domestic market gold will touch Rs 30,500 per 10 gm and silver Rs 47,500 per kg this year,’ added Gupta.