ET: Gold seen extending decline to $740-736 support range
MUMBAI: While gold is retreating towards its September low of $740 an ounce, the retreat could be well supported near this level as speculation of central bank rate cuts continues to grow.
The benchmark December contract on COMEX (commodities branch of New York Mercantile Exchange) is currently trading near $760 an ounce. On MCX, December future is trading closer to Rs 12,200 per 10 gm, losing more than Rs 300 in last four sessions.
“While the fundamental picture has not altered for the yellow metal, frequent pull backs in global stock markets and profit booking for diversion of liquidity has pressured prices lower. In the near term, international prices could see $740-736 as a strong support range. For MCX December contract this could correspond to a move towards Rs 11,800," said Harish Gallipeli, research head, Karvy Comtrade.
Sustained strength of the dollar against currencies like euro and sterling, as the economic outlook in Eurozone continues to deteriorate, seem to be adding pressure on the yellow metal. The dollar index – a measure of greenback's strength against a basket of currencies- is currently trading at a 23-month high past 85.
However, sliding global stock markets continue to reflect uncertainty while all central banks struggle to provide liquidity confidence. With escalating negative outlook for Euro zone economies, speculation of rate cuts from European Central Bank as well as Bank of England can act as a support for the precious metal.
According to the Financial Times' economic forecasts for all European countries, Germany, France, Spain or Italy are not expected to grow by more than 0.5 percent in 2009. On Tuesday, comments from BoE governor King suggested that the UK is in a recession.
A slide towards $740 is largely expected to coincide with Rs 12,000 in domestic prices. However, some market participants expect the rupee to show some pull back in coming days from its historical low against the dollar, adding to further down move in local prices.
According to Debjyoti Chatterjee, AVP-research, Mape Admisi Commodities, “The local currency is quite oversold against the greenback and a pull back in the same can take domestic gold prices further down to Rs 11,800-11,500 range. However, domestic festive demand will also pay a key role for such a decline to be lengthy."
