Prices could remain subdued for a while, till US Fed decision becomes clearer; new factor in coming year is gold monetisation scheme
Samvat 2071, closing year by the Hindu calendar, is ending with a loss for gold investors -- the third such in a row.
It closes a little over six per cent lower this samvat, at Rs 25,850 for 10g. In the past two, gold returns were lower by 4.4 and 9.15 per cent, respectively.
Veterans recall they haven’t seen gold falling in India for three years in a row for four decades.
Data with BS Research shows a consecutive year on year fall has happened for the first time in 25 years.
There is hope of the price improving in the next samvat, though after a while, given the US Federal Reserve’s plan to reverse its interest rate policy.
A US rate rise could result in further strengthening of the dollar and a fall in gold.
Sudheesh Nambiath, lead analyst at GFMS Thomson Reuters, says, “We expect the current December quarter average price at $1,100 an ounce.”
It presently trades at $1,193 an oz; the September quarter’s average was $1,125.
The price could even fall to $1,000 an oz in a few months.
Interestingly, in 2016, GFMS expects gold to average $1,200 an oz and the dollar-rupee rate to average at 65.33, lower than today’s price. In India, prices might go up to around Rs 28,000 for 10g.
Prices might remain subdued for a few months, “until there is more clarity on the timing and the scale of US rates’ normalisation. Among other bearish factors are low inflation expectations and generally weak investor sentiment towards precious metals”, GFMS said.
Gold mining companies would also like to see how successful are the gold bonds and gold monetisation schemes in India.
The bond scheme is seen as a dampener to physical gold demand. India’s annual investment demand is around 300 tonnes and the government had said it initially targets to sell bonds worth 50 tonnes.
An importer of gold said mines abroad are selling at a lower price to help Indian traders show that prices are falling much below the price announced for gold bonds by the Reserve Bank here, of Rs 26,840 per 10g.
In the spot market here on Monday, similar quality gold was quoted at Rs 25,975 per 10g.
Physical market traders apprehend that gold bonds could limit their business.
It is possible that in the coming samvat, whenever RBI announces a new issue of gold bonds, the physical market price falls, to tempt buyers into the physical market.
Surendra Mehta, secretary, Indian Bullion and Jewellers Association, said: “There is a disparity between the price of gold bonds and the physical market price after the announcement of the bond price a week before.
However, when these bonds are listed, the disparity could end.”
Another trend is likely to be higher import of dore or partially refined gold.
A refiner said on condition of anonymity, “Next year, 40 per cent of import might be in the form of dore gold.”
Image: Gold bars are stacked in the safe deposit boxes. Photograph: Michael Dalder/Reuters
