Gold, silver see sharp rebound

Last Updated: Sat, May 19, 2012 10:44 hrs

Gold and silver prices have recovered smartly in the past two days, with prices here up three to four per cent. Both precious metals have recovered all the losses incurred during the first fortnight of May, in just these two days.

In the spot market here, gold went up 2.4 per cent or Rs 670 on Friday, to Rs 28,840 per 10g. Silver gained 2.6 per cent or Rs 1,385 to close at Rs 54,085 per kg.

Is gold regaining a safe haven status or is it some correction in a falling market? Analysts are sceptical about a safe haven status returning to gold. Most of those whom Business Standard spoke to said the bounce was only a technical pullback.

Traders and analysts say gold was falling as investors were moving to the dollar as a safe asset. But, as the dollar has also risen significantly of late, some risk appetite seems to be returning to gold at lower levels. Buyers turned to gold as some banks in the euro zone were downgraded by S&P and Fitch, two leading international rating agencies.

The euro zone has already started discounting the possibility of Greece exiting and aggravation of problems in Spain. However, the dollar index on Friday saw mild correction and was at 81.34, down 0.05 per cent. In on Friday's session, the euro rose from a four-month low to $1.2711 per euro, compared to 1.2698 per euro in yesterday's trade, which also caused gold to move up.

Suki Cooper, commodity analyst with Barclays Commodity Research, sees short covering in gold leading to higher prices. She said, "Gold prices bucked the strengthening dollar against the euro and detached themselves from the softer risky asset performance, supported by a short covering rally"

Similar feeling was seen in the Indian market. Ajay Kedia of Kedia Commodities, said, "A technical pullback was seen in the yellow metal, taking it higher."

In sum, in the last two days, gold prices are up $50 per ounce on the international markets and Rs 1,000 per 10g on the Indian market. Gold moved up 3.2 per cent to $1,589.92 an ounce on the COMEX.

Silver on COMEX was trading at $28.43, up 4.2 per cent in two days. The metals lost 7.5 and 12.3 per cent, respectively, during the first fortnight of May. Both have seen heavy selling due to investors finding safety only in the dollar.

Apart from downgrading action by rating agencies, manufacturing data released by the US was negative. Jobless claims also rose in the US, which caused investors to move towards investing in the yellow metal, diversifying risk in assets other than the dollar.

Tensions continue to exist in Greece, as it is assumed that people will vote against austerity measures.

An analyst with Kotak Commodity Services said, "Gold edged up as the latest FOMC (Federal Open Market Committee) minutes kept hopes alive that the US Fed could consider additional measures in case the economic outlook worsens."

Silver usually follows gold or the direction of base metals, but the latter category traded weak while silver moved up four per cent in the past two trading sessions.

Analysts are not yet saying that safe haven status for gold is back. "The outlook for gold remains uncertain and it is too early to judge whether it has reversed," said Aurobinda Prasad, head of commodity and currencies at Karvy Comtrade.

More from Sify: