Prices to soften, with gold losing its safe haven appeal

Last Updated: Mon, May 13, 2013 04:33 hrs

Gold prices are likely to soften once the Akshaya Tritiya demand is over. Internationally, gold prices are expected to trade lower, but the weakening rupee will support prices next week.

Jewellers are excited about strong demand on Monday as prices are on the lower side. Akshaya Tritiya is an auspicious day for buying gold according the Hindu calendar. The dollar is expected to trade higher in global markets, which could put pressure on gold prices, but In India, due to higher dollar, the rupee will trade weak and hence, gold prices will find support.

However, gold in the international markets is unlikely to go up sharply from the current level. US data has been supportive, which will help the dollar strengthen.

"The expected quantitative easing by the US Federal Reserve, which means no more print-as-needed US dollar notes, has tightened money circulation and has led to a moderation in US inflation levels. Taming inflation levels erode the demand for gold as a hedge against inflation in coming weeks," Religare said in a report.

Last week, gold prices were down internationally on the back of a strong dollar, coupled with long liquidation in gold exchange traded funds. However, in the Indian market, the fall in gold prices was curbed due to a weak rupee as well as demand coming in on the occasion of Akshaya Tritiya.

Gold internationally was down 1.3 per cent to $1,448.20 per ounce, while on the Multi Commodity Exchange, the yellow metal closed at Rs 27,119 per 10g, down one per cent.

In the coming week as well, gold is expected to follow the same fundamentals as last week.

"There is nothing which will cause gold prices to move up as the dollar has gained momentum. Investors are now moving out of commodities and investing in the dollar," said Naveen Mathur, associate director (commodities and currencies), Angel Broking, a Mumbai-based broking firm.

The medium-term outlook for the yellow metal continues to remain weak, as liquidation in the metal is expected to continue and this will cause prices to fall. Gold has lost its safe haven appeal, according to analysts.

Also, the sell-off is across all commodities as investors now prefer investing in riskier assets.

"I don't see gold moving beyond Rs 27,600 (per 10 gm) in the Indian market, and this rise will be seen mainly due to demand due to Akshaya Tritiya. However, internationally, gold is seeing strong resistance at $1,485 per ounce, which it has not been able to break, and strong support is seen at $1,412 per ounce, if that support is broken, then the yellow metal will fall to $1,364 per ounce," said Ajay Kedia, managing director of Kedia Commodities.

More from Sify: