Market participants are worried over the US Federal Reserve's decision to cut interest rate to zero and resume quantitative easing as they view it as an acknowledgement of the coming recession.
Gold prices extended fall for the fifth consecutive day to Rs 39,995 per 10 gram in the Mumbai bullion market on profit booking as investors prefer to sit on cash. The yellow metal also came under pressure owing to the unwinding of long positions after a hike in margin calls forced traders to reduce their positions and cover losses in other asset classes.
Market participants were also not impressed with the US Federal Reserve's decision to cut interest rate to zero and resume quantitative easing as they view it as an acknowledgement of the coming recession.
Surendra Mehta, National Secretary of IBJA, told Moneycontrol, that the sale of bullion has been tepid as people are afraid to move out of their homes due to coronavirus fear. Dealers who were offering premium up to $25-35 have evaporated and now give a premium of $3-5.
The rate of 10 gram 22-carat gold in Mumbai was Rs 36,635 plus 3 percent GST, while 24-carat 10 gram was Rs 39,995 plus GST. The 18-carat gold quoted at Rs 29,996 plus GST in the retail market.
People may avoid staying invested in stocks or commodities and prefer to sit on cash to ensure capital safety rather than worrying about the return. This situation typically arises when economic uncertainty or geopolitical issues spike. The way central banks the world over are cutting interest rates is creating panic in investors' minds as things may worsen from here on, said Sunilkumar Katke, Head of Commodities and Currency at Axis Securities.
Investors were forced to liquidate their precious metal positions in favour of cash in order to meet margin calls to cover losses in the stock market. The margin requirement is increasing with the fall in commodity prices.
Gold may see a level of $1,400 on downside on extreme panic situation, he added.
According to Navneet Damani, Vice President, Motilal Oswal, gold prices rose nearly 3 percent, following a steep decline in the previous session, as the dollar and global equities fell sharply after the US Federal Reserve preponed their policy meet which was scheduled later this week and announced another surprise interest rate cut.
The Fed slashed rates back to near zero, restarted bond buying and joined other central banks to ensure liquidity in dollar lending to help put a floor under a rapidly disintegrating global economy amid coronavirus pandemic.
The gold/silver ratio currently stands at 109.15 to 1, which means the amount of silver required to buy one ounce of gold.
Silver prices declined Rs 6,445 to Rs 36,640 per kg from its closing on March 13.
In the futures market, the gold rate touched an intraday high of Rs 41,199 and an intraday low of Rs 38,400 on MCX. For the April series, the yellow metal touched a low of Rs 37,530 and a high of Rs 44,961.
Gold futures for delivery in April slipped Rs 1,530, or 3.79 percent on the MCX trading at Rs 38,818 per 10 gram in evening trade in a business turnover of 7,618 lots. Gold contracts for June delivery eased Rs 1,680, or 4.12 percent, at Rs 39,110 per 10 gram in a business turnover of 13,021 lots.
The value of the April contract traded so far is Rs 11,037.95 crore and June contract saw the value of Rs 2,040.88 crore.
Similarly, Gold Mini contract for April was down Rs 1,536, or 3.80 percent at Rs 38,846 in a business turnover of 6,639 lots.
Kotak Securities advised its clients to sell April Gold at Rs 40,000 with stoploss at Rs 41,000 and target of Rs 38,300-38,300. The yellow metal has strong support at $1,445-1,400 on Comex.
Motilal Oswal said spot gold has support at $1,505-1485 whereas resistance is at $1,545-1,565.
At 14:21 pm (GMT), spot gold slides $56.39 at $1,473.03 an ounce in London trading.
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