Gold snapped a seven-day rising streak and posted a decline of 2.2 per cent on Tuesday, due to profit booking by wary investors on weak demand from retail and bulk consumers, following the fourth extension of the nationwide lockdown.
After seven days of continuous rise, standard gold in the popular Zaveri Bazaar in Mumbai shed Rs 1,028 to trade at Rs 46,778 per 10 grams on Tuesday as against Rs 47,669 the previous day. Silver also lost 2.7 per cent to Rs 46,800 a kg on Tuesday from Rs 48,120 a kg on Monday. There was no transaction of business due to closure of shops. Sustained weak demand has pulled gold prices to trade at a discount of Rs 150 per 10 grams in spot sales.
While high prices have dented retail demand, the nationwide lockdown and consequent closure of factories and jewellery stores have hit bulk consumption of bullion. Interestingly, the Centre has granted permission to the state governments to allow functioning of factories and retail stores with precautions. Outlets in red zones are yet to commence operations in full swing, paralyzing a substantial part of jewellery business.
“The temporary decline in gold prices can be attributed to profit booking on high prices. Appreciation of the rupee against the dollar also helped gold price fall. But, outlook remains bullish as gold continues to have a safe haven appeal against the global economic uncertainty,” said Gnanasekar Thiagarajan, Director, Commtrendz.
The global economy continues to contract due to lockdown. With the situation is moving from bad to worse on sharp increase in new Covid-19 infected cases, the pandemic has challenged growth of the global economy. For India also, the Goldman Sachs has forecast its gross domestic product (GDP) to contract by 5 per cent during the financial year 2020-21. Other global agencies have also made similar forecast for contraction in the economic growth of the world and India is no exception.
Interestingly, gold prices for delivery in June reported a marginal decline of 0.3 per cent in late afternoon trade on the Multi Commodity Exchange (MCX) but returned in positive territory in early evening trade. After volatility, gold prices stabilised at Rs 46720 per 10 grams in early evening trade, a marginal gain of 0.14 per cent from the previous close. Silver for delivery in July, however, fell by a marginally 0.06 per cent to trade at Rs 47,670 a kg.
“There is huge inventory of imported gold left with jewellers due to closure of factories and retail stores following the lockdown. Hence, both retail and bulk demand remains weak. But, long term fundamentals are bullish for gold with its prices to hit Rs 65,000 per 10 grams by the end of the current calendar year. With the general election in the United States is due in October and the trade war between the United States and China tends to escalate on Covid-19 issues, gold may find strong support from investors,” said Kishore Narne, Associate Director, Motilal Oswal Financial Services Ltd.
The rupee appreciated by 0.4 per cent to close at 75.6 against the dollar on Tuesday. Experts, however, believe rising crude prices have no co-relation with gold any longer.
Meanwhile, gold prices in the international market were up 0.01 per cent to quote at $1,734 an oz on Tuesday. Silver prices moved in tandem, gaining 0.06 per cent to close at $17.1 oz on Tuesday.