Gold prices to trade sideways to down this week, following import duty hike; support at Rs 51200 per 10 gm

By Tapan Patel

Commodity prices traded lower with most of the commodities in the non-agro segment continuing to decline while crude oil prices remained exceptions with marginal gains. Bullion prices declined on market expectations over aggressive FED in July meeting and India import duty hike. Base metals traded weak on lower demand from China and global slowdown concerns along with stronger dollar. Crude oil prices traded firm on supply concerns and strong demand for the year. 

Gold prices traded lower with spot gold prices at COMEX fell by 0.85% to $1811.43 per ounce for the week. Gold August futures at MCX ended 2.56% higher at Rs. 51917 per 10 gram following rupee depreciation and hike in import duty with immediate effect. The spot rupee fell by 0.89% at 79.04 against the dollar for the week. Gold ETF holdings continued outflows as holdings at SPDR Gold Shares fell to 1042 tonnes from previous week’s 1061 tonnes. The CFTC data showed that money managers have decreased their bullish bets in gold by 15179 to 9 month low. 

Silver prices witnessed heavy sell-off with spot silver prices at COMEX plunged by 6% to $19.88 per ounce for the week. MCX Silver September futures fell by more than 3% at Rs. 57742 per KG for the week. Silver prices extended fall underperforming gold on weaker demand for industrial metals and heavy selling in base metals. The CFTC data showed that money managers have decreased their bullish bets in silver by 6816 to 5 week low. 

Bullion fell almost 7% last quarter — the most in more than a year where Gold prices reported a third weekly decline and fell by 8% for the quarter ended in June. Bullion prices extended decline on rate hike expectations from US FED and other major central banks. The market players are expecting another 75 bps increase in interest rates in the upcoming US FOMC meeting. The stronger dollar and firm bond yields has dampened demand form non-interest bearing assets like gold and silver. 

The dollar index rose by 0.91% at 105.14 for the week. The real blow on the precious metals prices came after India, the world’s second biggest bullion consumer, raised its basic import duty on gold to 12.5% from 7.5%.  Silver prices plunged on market speculation of possible hike in import duty too. The move dragged international gold prices to seven month low while rupee depreciation and duty impact supported MCX gold prices to trade firm.  

We expect gold prices to trade sideways to down this week with COMEX spot gold resistance at $1840 per ounce and support at $1780 per ounce. At MCX, Gold August prices have near term resistance at Rs. 52400 per 10 grams and support at Rs. 51200 per 10 gram. COMEX Spot silver has near term resistance at $20.80 per ounce with support at $18.70 per ounce. MCX Silver September has important resistance at Rs. 60500 per KG and support at Rs. 56000 per KG.

(Tapan Patel, Senior Analyst (Commodities), HDFC Securities. Views expressed are the author’s own.)