Moneycontrol
Dec 02, 2016 09:47 PM IST | Source: Moneycontrol.com

Hit by cash ban, gold may dip further; next watch Fed and dollar

The government‘s demonetisation exercise and the recent clarification by tax authorities on gold holdings by individuals per household could also add to pressure on the metal.

Sarbajeet K Sen
Moneycontrol

Gold prices have been sliding in recent days on account of uncertainties in both global and domestic markets as investors await US job data later today and the Fed’s move on interest rates at its December 15 meeting.

The government’s demonetisation exercise and the recent clarification by tax authorities on gold holdings by individuals per household could also add to pressure on the metal.

Amid such uncertainty, commodity experts advise investors to stay away from any immediate purchase of the yellow metal, as there are chances of further slide in the event the Fed finally decides to raise interest rates.

"Investors should wait and watch the US Fed moves. It is more a ‘hold’ on gold than a ‘sell’ at this point. However, there is no need for panic selling,” says Hareesh V, Research Head, Geofin Comtrade Ltd.

Hareesh said that there were chances of further liquidation of gold holdings adding to downward pressure. “Currently, gold has broken the psychological level of USD 1,200 an ounce. There is a possibility of liquidation to continue. USD 1,120 is a good support level. If it closes below that, gold can slip to its recent low of USD 1,040. However, this is an extreme case,” he said.

On Thursday, gold continued its downward slide to touch a near 10-month low of USD 1,168 an ounce in the global markets and a six-month low of Rs 29,000 per 10 grams in the domestic market, Hareesh said that US job data later today will be crucial for gold “If the data is positive it might prompt the Fed to raise interest rates since the economy has been looking up.  It seems most policy makers are positive too. If the Fed hikes interest rates, the dollar, which is already at a multi-year high, will move up some more. This will have negative impact on gold since dollar and gold have an inverse relationship,” he said.

On the domestic front, demonetisation and a reiteration by tax authorities on gold holdings by individuals per household could be a negative for the metal. “Demonetisation has been an important reason for gold prices sliding in the domestic market. The clarification reiterating levels that individuals can possess gold can create some selling of excess holding and lower prices,” Hareesh added.
Aasif Hirani, Director, Tradebulls, also advises investors to wait-and-watch on gold.

“This is not the right time to invest since gold might be range-bound between Rs 26,000 and Rs 29,000 per 10 grams. One should wait for a clear picture to emerge on the two major factors – US Fed’s decision on interest rates and dollar movement,” he said.

Hirani says one should take fresh positions only when there are definite signs of a move upwards or a significant correction from the present levels.

He said the fortune of the yellow metal is closely linked to the stock market as well. “If stock market corrects significantly from its present levels, it could lead to a rebound in gold,” Hirani said.
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