Gold touches 33-month low, may crash further

Last Updated: Thu, Jun 20, 2013 12:40 hrs

Gold and silver prices fell sharply today touching 33-month low.

Both the metals were trading around today's prices in September 2010 as investors digested comments from the US Federal Reserve that stoked fears of a scaling back of bond purchases.

Gold tumbled 3.4% on the previous session's settlement to $1,304.90 a troy ounce during European morning trade, its lowest price since September 2010.

However consumers in India have not been benefited as fall in rupee has prevented sharp fall in gold and silver. Hence despite gold repeating the fall seen in April, the reaction from the Indian consumers will be different.

Chairman Bernanke said that if the FOMC's (Federal Open Market Committee) economic forecast materialises, asset purchases will be completed by about this time next year.

These comments resulted in investors selling gold and just before announcement of US Fed's decision on Wednesday gold in the US was trading at $1375 per ounce but after that it started falling.

And today when China's flash PMI data came lower than expected and remained consistently below 50 indicating weakness in its economy, all metals led by gold fell further.

Gold was trading at $1313 per ounce (4.5% lower than price prevailing prior to US Fed's announcement) while silver was at $20.30 (nearly 6%) per ounce in afternoon today. Both prices were below April's low levels.

In India, however, the fall has been restricted to the extent of fall in value of rupee. The Indian currency also fell today by nearly 2% and closed at 59.9850 against the dollar.

Since India is a price taker in gold, lower rupee means higher cost of imports and hence gold and silver prices were down 2.4 and 4.2% respectively in MCX futures.

Gold was trading at Rs 27,298 per 10 gram before touching low of Rs 27,221 while silver was trading at Rs 42,084 per kg after recovering from a low of Rs 41,563.

Haresh Soni, Chairman of the All India Gem and Jewelery Trade Federation (GJF) said that apart from indication of tapering off of bond buying programme in the US and lower manufacturing data- PMI from China, the gold market was of the view that Indian consumers will not come and buy as they did when gold prices corrected in April.

Because of sharp fall in rupee against the dollar and 2% import duty imposed last month has kept gold prices higher in India and hence Indian consumers have not been benefited from the today's fall.

Soni believes that Indian consumer will not be in a hurry this time to buy gold.

Ashok mittal, CEO of Emkay Commodities said that, "gold has broken its technical suport of $120 but if international gold closes below that than next technical target is $1270 and for silver the target is $19. However, that again will be technical level and investoRs should buy if there is improvement in fundamentals for gold buying."

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