Gold shine to dim; bet on silver: Experts

Even though the price of gold has been falling in the international markets, the rupee depreciation has propped up the price of the precious metal in India, taking it to new highs everyday. It recently touched Rs 30,750 per 10gm, but experts see the shine of the metal dimming from here on.

In an interview to CNBC-TV18, Naveen Mathur from Angel Broking says that the more recent upmoves in the gold market are because of the weakness in the dollar because of the eurozone crisis. Heading into the Federal Open Market Committee (FOMC) meet today, he has a sell call on gold, with targets of Rs 30,280 for today. Kishore Narne of Anand Rathi Commodities also shares the same view, and adds that the lack of QE3 expectations from the FOMc meet may hit gold. “But if there is any mention about QE3, it is a positive surprise for gold,” he added. Gold ETFs have also seen sharp outflows the past few days as investors use these high levels to book profits. Despite this, Mathur says overall the retail participation will continue to grow. “Since gold forms one part of very strong portfolio rebalancing tool, people would continue in times of safe haven demand,” he said. Mathur has a buy call on silver for today. “We would recommend to buy silver around Rs 53,900 with a stop loss at Rs 53,600 and target in the range of Rs 54,700- 54,600 per kg for the day,” he said. Also read: Precious metals prime for a bull run? Below is an edited transcript of their interview with Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video. Q: How much more upside do you see on gold from here? Mathur: I think the market is trading sideways. We have seen recent moves on the upside for gold, primarily because of the weakness in dollar because of the euro problem. Also, after the Sunday elections people felt that Greece would not exit the euro zone which created a positive sentiment for a day only. For that particular weakness, gold has traded higher and it is trading at around USD 1620 per ounce levels in the international markets. In the Indian markets, it looks like Rs 30,200-Rs 30,250 per 10gm is what it is trading right now. Technically we feel that the intraday market positions can be sold at around Rs 30,280 to Rs 30,290 levels for the day. Stop loss on this trade can be put in at around Rs 30,430 and we are expecting targets by the day end at around Rs 30,100 per 10gm. The Fed policy decision which would be announced today at around 10:00 PM Indian standard time would be very crucial for how the currency would behave, and therefore the commodities for the world markets. Q: You as well would go with sell on gold today? Narne: I will not be selling on higher level, I would wait for a break down. Rs 30,150 per 10gm is a crucial support and a break down below that it is a good sell. We are looking close to Rs 29,900 kind of levels on lower side. But, this is a trade for only a day because tomorrow will be completely different depending on how the FOMC will be. I think overall there is a very little expectation at this point of time, but if there is any mention about QE3 it is a positive surprise for gold. Q: A lot of the strength on the CRB index came courtesy what happened with copper prices. You are going with a buy strategy on that one? Mathur: I think copper overall does not look to be a very strong buy for the days to come. We are still in the woods for the euro zone, the Spanish bond yields are going up again, Italy has problems, we are talking about Cyprus and all of these issues are not giving a leeway. But technically, one can buy the copper contract for intraday which is trading at around Rs 422 or so. The June contract on the MCX can be bought at around Rs 418 to Rs 419 per kg levels. Stop loss for this trade we would recommend at Rs 415 and the targets on the upside can be seen in the range of Rs 424 to Rs 425 for the day. Q: What is your view on copper? Narne: My target is Rs 418, and I’m looking to sell at current levels of Rs 423-Rs 424 with Rs 425 per kg as a stop. Most of the rally has happened and I think market should neutralised before the FOMC. I think most of the steam which has been pumped in might be out today before the actual FOMC meet. Rs 418 to Rs 425 per kg is the range, so now it is closer to the higher end of the range so I would be selling here. _PAGEBREAK_ Q: You are optimistic on silver? Mathur: Yes, I think technially only, nothing much majorly to talk about on silver. For the day one can buy the silver contract which is trading at Rs 54,500 per kg levels. We would recommend to buy this contract of MCX around Rs 53,900 with a stop loss at Rs 53,600 and target in the range of Rs 54,700- 54,600 per kg for the day. Q: What exactly is the experience you have in terms of retail interest on trading gold because it has made new highs but gold ETFs have seen the sharpest outflows? Are you seeing people using these opportunities to exit? Mathru: If you see, the Rs 41 crore worth the assets under management (AUM) which have been drawn down in month of May is largely because of high levels we have seen on the gold prices. At Rs 30,200-30,100 per 10 gm kind of levels people would be booking some partial profits out of this particular price levels. But overall the retail participation would continue to grow, maybe not on the futures side or the exchange side but particularly on the ETF side which is more oriented towards portfolio rebalancing. Since gold forms one part of very strong portfolio rebalancing tool, people would continue in times of safe haven demand. Today what we are seeing is gold behaving more or less kind of riskier asset. If the world market doesn’t behave too well, the gold prices also come down. Because of the rupee fracture, in Indian markets we still hold it above Rs 30,000 per 10 gm in spite of the international markets in the last few months being a little down. I think the portfolio diversification strategy would work for gold. The safe haven demand may come in if we see problems erupting again from eurozone or further slowing down of the US economy and the Chinese economy. One day or other, the safe haven demand may peak again and there gold investments from retail side - maybe on the ETF, maybe on the futures or the E-series of the NSEL - would again come to the foray. I think the physical demand would still not be too great because of the high prices and that is what we are seeing from the last couple of quarters. I think overall investment demand would continue to be there for gold in days and years to come. Q: Lower levels for crude you reckon? Narne: No I think we are in a slight trading range of around USD 82-85 kind of levels for WTI and USD 95 per barrel for Brent is a pretty good support. We are looking to sell on slightly higher levels of around Rs 4700 per barrel with a small stop loss of Rs 4730 for the day. Look for targets close to Rs 4560 or Rs 4570 levels per barrel. But again, it is a pure intraday strategy. Overall, if there is any boost of liquidity, probably this is one asset class where you can actually find a lot of fund interest coming back because there has been huge liquidation on Commodity Futures Trading Commission (CFTC) positions. So there is a good potential for crude to return back to around USD 87-90 per barrel on WTI and around USD 102-103 per barrel on Brent. But again this will be a short term move because of macro level economy continues to be pretty week on the demand side and supply continues to be there. But the only thing is the July first oil embargo of Europe which would be putting a lot of upside pressure on crude. I think towards July 1 there is a nervousness which is being built into the market on the insurance of most of this crude which is being transported from Iran so that would take off a lot of crude from the markets which could push up the markets maybe USD 2-3 per barrel further towards July 1st.