View On Gold: AnandRathi Commodities Ltd

Mr. Ravindra Rao ( Head - Commodity Research, AnandRathi Commodities Ltd) on Gold:

Gold fell to its lowest since 2010 as a strong US dollar and a temporary end to the Greece debt crisis weighed on the bullion. The US dollar has proved to be the best performer against the major basket of currencies as the receding concerns over Greece and the Federal Reserve Chair Janet Yellen's strong intentions of a probable rate hike this year prompted investors to keep their focus on the safer currency, the greenback. According to Bloomberg, Fed Funds futures showed a 31% chance that the central bank would raise its benchmark rate in September from virtually zero. Higher bank rates cut the appeal of precious metals because the latter don't pay interest or give returns as other assets such as bonds and equities do. This has kept up the pressure on the yellow metal as commodities denominated in dollars tend to move lower with the dollar's appreciation.

Uncertainty about Greece came to an end as the debt-ridden country obtained a new lifeline from its European creditors. This has bolstered stocks around the globe as traders dumped safer assets such as gold and entered riskier ones such as equity.

A historic nuclear agreement between Tehran and the West was reached in Vienna. Under the agreement, restrictions imposed by the United States, the European Union and the United Nations are to be lifted in exchange for curbs on Iran's nuclear programme. The safe-haven status that has been built up in gold due to the financial and political crises has faded now and money has already started flowing into riskier assets such as equities.

Investment demand is weak. Domestic sentiment has turned extremely bearish as Federal Reserve chairperson Janet Yellen reiterated her hawkish outlook for an initial interest-rate hike this year, bringing down physical demand. Indian gold imports in June have dipped by almost 37% cent, to $1.96 billion. Imports of the precious metal were $3.12 billion in the same month of 2014. In May this year, imports were $2.42 billion.

Aside from the weak fundamental picture, technical's also point towards bearishness in the metal. $Spot Gold has penetrated the strong support of $1128/Oz, a neckline support of an Head and Shoulder pattern. It's a strong bearish formation and the target comes to $990/Oz. On the domestic front, considering the current rupee dollar conversion, gold price could fall in the range of Rs.24000-23500.

Source : Equity Bulls

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