Stay short in Gold at higher levels: Karvy

Karvy Commodities Broking has come out with its report on Gold and Silver. The research firm expects Gold to take cues from the Euro and dollar movement. Hence, recommend staying short for gold from higher levels.

Gold: Gold prices fell for fifth straight month in February, the longest run of monthly decline since 1997. Presently it has rebound at the Globex (1576.30, +$4) from prior closing. We expect gold to pare this initial gain as the metal has lost its appeal against the riskier assets. The Euro is also expected to stay weak amid political deadlock in Italy and as the country moved closer to a new election. The uncertainty and the sequester in the US may force investors to sought after the dollar. So, a likely strengthening dollar may keep gold under stress for the day. Investment sentiment is expected to remain weak for gold.

After falling for nine straight sessions, holdings of the SPDR, the largest gold backed exchange traded funds, at present are at the lowest since early August 2012 (1253.88 tons). Gold spread (Jun-Apr) has again declined by 5.56% last week indicating demand for future is less. This should reflect into piling up of inventories at the COMEX warehouses. We therefore expect prices should stay under pressure. From the economic data front, the euro zone investors confidence is likely to get weaken which would be another factor for the euro to decline. In absence of any such data releases from the US, we expect gold to take cues from the Euro and dollar movement. Hence, we recommend staying short for gold from higher levels.

Silver: While writing this report at 09:25 IST, silver prices were seen trading with gain of $0.18 ($28.67) at the Globex. Slight weakness in dollar would have supported silver at present but we expect the dollar to revive. As discussed in gold’s outlook, the uncertainty over the Italy election may continue to keep the Euro under stress. Also, the dollar might gain on detailed budget cuts due to the sequester. So, silver is also likely to stay under pressure.

Silver stocks are pilling up at the COMEX warehouses which are staying at the highest level since August 1997. Since past seven weeks, stocks are increasing by an average 1.34%. Most importantly, during the same period, stocks at the eligible category are rising by an average 1.47%. These indicate spot activity is less. So, we expect silver to stay weak for the day and recommend staying short for the metal from higher levels.

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

To read the full report click on the attachment

Read More