Gold prices are up 25 per cent and silver, 40 per cent this year
After a brief consolidation in August, precious metals have resumed their movement northwards. After the Brexit, bullion is once again following the US rate hike speculations in the market. This time, the speculations are favourable for precious metals.
Gold prices are up 25 per cent and silver 40 per cent from the beginning of the year. Gold prices had closed the last calendar year at $1,061 an ounce in the international spot market and moved up twice above $1,350 per ounce levels— first time when the Brexit referendum results came out in June and last week when the market ruled out chances of a September rate hike by the US Federal Reserve. Silver is still trading around its yearly high levels, moving up from $13.83 per ounce at the beginning of the year.
“The calendar year started off with the sell-off in the equity markets. The slowdown in China and the US kept the financial markets worrying. Speculations about a rate hike have been dragging down gold and silver prices in 2015 and after the first rate hike, these speculations were put to rest. In 2016, the speculators were busy worrying about whether the US will go ahead with the four rate hikes it had mentioned last year,” said Himanshu Gupta, senior research analyst, Karvy Comtrade. The investments in gold exchange traded funds too were significantly going up since the beginning of the year.
These factors kept the precious metal counter busy in the initial months. Gold prices moved up to Rs 31,000 in February, corrected to Rs 28,500 and then rebounded to Rs 30,000 in March and once again fell to Rs 28,700. By then, the chances of Britain exiting the European Union started increasing the investor interest in safe haven assets like gold.
On June 23, gold touched a yearly high of $1,358.80 when Britain decided to exit the European Union. The metal prices jumped eight per cent during intra-day trade, up more than $100 in a day. In the Indian futures market, gold had risen from Rs 24,931 per 10 gm to Rs 31,925. In the Multi Commodity Exchange gold gained Rs 2,000 per 10 gm. Silver, which is generally more volatile than gold, however, moved up only six per cent in the international market then and 4.2 per cent on MCX.
Post-Brexit, the global economic worries have escalated. There are worries about Britain going into an economic slowdown and the European economy remaining in the slump. The Brexit has also made the US rethink about the interest rate hike.
While the fundamentals are still in favour of precious metals, gold saw some profit-booking to slip from its multi-year highs. But silver has been continuing its bull run even after the Brexit, as it was supported by the strength in base metals.
In August gold prices were seen consolidating and trading in a range of $70 between $1,368 and $1,305. Rate hike uncertainty in the US and strengthening of the dollar index and host of good economic data sets from the US were the main factors that led to the consolidation in the metal, said Prathamesh Mallya, chief manager-non-agri commodities and currencies, Angel Commodities.
US consumer confidence had risen to an 11-month high in August and the consumer confidence index increased 4.4 points in August, the highest reading since September 2015.
However, by September things started changing. In the first week of September, bullion made its fastest rally after the Brexit. Spot gold gained 1.77 per cent, or $23 per ounce, to touch a three-week high of $1,353 last week, while silver gained 2.75 per cent after economic activity data from the US Institute for Supply Management fell to its lowest level since February 2010.
“The market has been speculating on how the US Federal Reserve has been moving away from a rate hike in September. The labour market data on Friday too was below expectations. The latest data pulled the dollar index down in favour of gold. The market is almost sure that a September rate hike is off the radar now,” said Gupta. In a week’s time gold was up around $50 due to the release of weaker-than-expected payroll data.
In the MCX, gold moved up to a 30-month high level of Rs 31,400 from Rs 30,600 in a few sessions last week. Similarly, silver moved up to Rs 47,700 in the MCX from Rs 44,500.
“After the Brexit, we have seen some consolidation in the market. While the market will be cautious around the September meeting, prices look bullish in the near to medium term. Gold price is likely to move up to $1,450 levels in the international market and Rs 33,500 in the domestic market before the end of the calendar year. Silver can move up to $23 and Rs 54,000 around that time,” said Gupta.