Gold may not be precious any more as it is already in a spiral downward journey.
Global gold prices hit a three-year low on Friday after US Federal Reserve said it would wind down stimulus later this year. Spot gold was down 0.5 percent at USD 1,271.16 an ounce by 0121 GMT on Friday. It fell to USD 1,269.04 earlier - its lowest since September 2010.
Any further decline in gold prices will lead to a production shutdown, cautions Sunil Kashyap, MD, Scotia Moccata. "Gold is now close to its cost of production. If the prices fall below USD 1,250 an ounce, we will hear people shutting down mines because below that level producing gold will not be profitable," he told CNBC-TV18 in an interview.
Gold recently breached critical technical level of USD 1322 an ounce and gold prices are likely to remain weak going ahead. The next key level to watch out for is USD 1,180 an ounce, he added.
Below is the edited transcript of Sunil Kashyap’s interview with CNBC-TV18
Q: Is the beginning of a big spiral down in gold or do you see it support at around USD 1,200 per ounce?
A: As far as the spiral is concerned, it started last September where we were trading at USD 1,750 per ounce, so we have already retraced quite considerably. At these levels now we are getting very close to the cost of production for a lot of marginal mines. So, it is dangerous in terms of any further decline is going to see product shutdowns. We are coming close to the end of the decline because anything below USD 1,250 per ounce, you will start hearing about people shutting down mines because they cannot make it enough profit.
Q: Things plateaued for a while after the initial correction on gold prices. What kind of immediate targets are traders talking about now given the concerns you just raised?
A: USD 1,322 per ounce was a critical level which it broke a couple of days ago and so that is why it is looking weak. Technically, people are looking around USD 1,100-1,180 per ounce as a level where from a technical point of view the short-term market may move towards.
However, we have to look at some of the fundamentals now because supply is going to be challenged at these levels and demand or the physical side is still quite strong. So, you may see further declines, but the fundamentals should start kicking in soon.
Q: India has put in a lot of import duty restrictions with regard to gold imports anecdotally have you heard of what the change in trends have been in terms of whether or not gold imports have crashed as is expected over the last month or so?
A: The official numbers already indicate considerable decline. Therefore, to that extent, what the government wants to achieve in terms of official imports of gold have declined considerably in some places as much as 80 percent. Yes, there has been an impact in terms of official import.