Gold Closes above 30840 on Closing Basis May Invalidate the Downside

Gold had made its weekly low of $1260.70. Gold prices that are seen falling since $1361 has continued to trade lower for the past three weeks. Market has been quite disturbed due to various global economic situations so the business participation is very low. We could see that the trading volumes are very thin at the COMEX platform. In the last week we had suggested a bearish view on gold citing major reasons as lower demand from the Asia while investment demand in the form of ETP’s and ETF’s have been low in the US. The gold holdings have been steady near 868.32 tons at the SPDR gold trust, the world’s largest gold ETF. Lastly, we wish to cite another reason for gold prices to rebound from the weekly low of $1260 could be the Wednesday’s comment by the Janet Yellen, the nominee for Fed new president on not tapering off the US stimulus program which eventually pulled dollar index to trade down. At the domestic market, December futures gold traded higher by more than Rs. 600. As of Friday the most active December contract is seen trading at Rs. 30350. We have seen a divergent performance of gold at the local market due to currency depreciation. The Indian rupee ended the week down by 1% at 63.11 per one US dollar. However, local demand continues to be low in India, post festive season.

As far as next week is concerned we need to develop a cautious approach on gold. As noticed in the past few months the demand and supply factors are insignificant in the market while economic events, central bank officials’ comments and the conventional economic data are driving the market. We believe there would not be any fresh demand coming in neither from the west nor from the Far East to push prices higher in the next week. However, we are hoping these factors to remain stable while globally gold investors’ may eye the US fed’s comment on the tapering off its stimulus program. Although there have been statements that unless economy recovers at a better pace tapering off the US stimulus program would not take place. In this regard gold the precious metals might surge as a safe haven appeal However, interestingly, though there are lots of discussions/comments seen in the market on tapering off stimulus program in the recent past but the impact is yet not visible on gold prices. This means the overall demand scenario on gold continues to be low. So, we are not suggesting any strong buy on gold for the next week. Meanwhile, the positive correlation between euro currency and gold has been quite disturbed for the past several months. However, we are holding up a bearish view on euro currency which might probably have a slight negative impact on the gold commodity.  Likewise, from the US we believe the data may provide a mixed outlook on the economy while Fed’s comment may keep US dollar index lower which might support the gold to trade on a mixed note. Globally, we believe gold commodity may though remain lower but volatility cannot be ruled out. At the domestic market, due to continuous Indian rupee depreciation gold prices might remain elevated. In our last week’s report we had expected though both MCX and COMEX gold prices to trade down but hinted that price fall in local market could be limited due to poor currency performance. So, we carry a divergence view on gold at MCX and COMEX platform

Silver Unlike gold that traded higher, silver continued to trade down .However, the performance of silver at the global market and the local market was slightly different due to local currency (Indian rupee) depreciation. Another reason for silver prices to trade down was the weak industrial metals performance. On an average base metals traded down by more than 1.50% in the last week supported silver prices to trade lower. Meanwhile, the US Fed’s comments on stimulus program are not disturbing much on the silver prices like it has been disturbing gold commodity. Therefore, gold and silver ratio moved sharply higher. We had suggested a ratio strategy in our last weekly report with a recommendation of buying gold and selling silver.

In the next week believe silver is expected to trade down supported by weak base metals performance. However, the crucial factor that could weigh on silver to trade down if global equities make a slight profit booking on their recent price surge. As we understand, globally gold investors’ are bit cautious about the Fed’s comment on its stimulus programme. By any means if any further comments are proposed on not tapering off quantitative easing then possibly silver might recover from its long weekly low. However, as of now we do not expect any turn around to notice on silver prices so possibly we hold a bearish stance on the same. The economic data from the US, Europe and Asia may have less impact on silver commodity in the next week. Overall, we believe silver commodity to trade lower in the next week. Hence, we continue to hold our previous week’s ratio strategy where in we recommend selling silver futures contract and buying gold contract. At the local market due to Indian rupee depreciation fall in silver prices could be limited. From the investment front the silver demand continues to be steady to slightly lower. Silver holdings at the I- shares, world’s largest ETF backed by Silver have declined from 348550 to 347250 million ounce. The detailed individual economic data are explained in our weekly economic report. Overall, we hold a bearish view on silver for the next week and recommend selling from higher levels.

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