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Informist, Thursday, Dec. 5, 2024

By Sandeep Sinha

MUMBAI – Gold prices are likely to trade with a negative bias this month as persistent strength in the dollar and weak physical demand may exert downward pressure on the metal. The sentiment in gold was also hurt by profit-taking by investors, traders decreasing their net long positions on COMEX, and continued outflows from gold exchange-traded funds.

The dollar index, which measures the strength of the greenback against a basket of six major currencies, rose 2.2% in November, the second straight month of gain. "The dollar index is likely to rise further as Donald Trump’s victory raised concerns over his policies on immigration, trade, and tax, as (they are) seen to spur inflation," Raj Deepak Singh, derivative head at ICICI Securities, said. "Higher inflation and US growth will crumple the Fed’s (US Federal Reserve's) ability to cut rates at the expected pace next year."

Speaking at The New York Times DealBook Summit Wednesday, Fed Chair Jerome Powell said the US economy is stronger now than the central bank had expected in September when it began cutting interest rates and appeared to signal his support for a slower pace of interest rate cuts. This lowers the chances of aggressive interest rate cuts by the Fed next year and weighs on precious metals.

"As gold prices have given around 30% returns this year, we will likely witness a bout of profit-booking by hedge funds and ETFs in December, which might put pressure on prices," Prithviraj Kothari, managing director of RiddiSiddhi Bullions, said.

The start of the month-long Kharmas, from Dec. 15 to Jan. 14, considered inauspicious in India, will also hit gold demand as there will be no marriages held in this period. Buyers have also been deterred by prices hovering near record highs in the domestic market.

Money managers decreased their net long positions in COMEX gold by 38,884 lots to 198,191 as of Nov. 26, the second straight month of fall, according to Commodity Futures Trading Commission data. Gold holdings with the SPDR Gold Trust, the world's largest gold-backed ETF, fell 14.1 tonnes to 878.55 tonnes in November as Trump’s victory in the US presidential poll led to a rally in riskier assets.

The February gold futures on the Multi Commodity Exchange of India are seen at INR 74,150-78,850 per 10 grams this month, according to the median of estimates of 14 broking firms and analysts polled by Informist. On COMEX, prices are seen at $2,570.0-$2,740.0 an ounce. At 1540 IST, the February gold contract on the MCX was at INR 76,985 per 10 gm and the same-month contract on COMEX was at $2,671.6 an ounce.

In November, the price of gold fell 4% on month on COMEX and 2.6% on MCX because of weak safe-haven demand and strength in the dollar. Imports of the yellow metal by India fell nearly 30% on year to 85.74 tonnes in October, from 121.93 tonnes in the same month last year, owing to the higher base effect and domestic gold prices hitting a lifetime high.

However, the sharp depreciation in the rupee against the dollar will provide support to domestic gold prices. The Indian unit hit an all-time low of 84.74 against the dollar Wednesday. A weaker rupee makes dollar-denominated commodities more expensive for domestic buyers.

According to the World Gold Council's latest report, central banks bought 60 tonnes of gold in October. As of Nov. 29, gold was trading at a discount of $10.1 per ounce in India and $21.7 an ounce in China, WGC data showed.

The escalation in the war between Ukraine and Russia, the growing conflict between Syrian rebels and the Bashar al-Assad government, and the fall of the French government are supporting gold's safe-haven appeal. "Gold could continue to consolidate in a broad range before steadying and ultimately rallying from a long-term perspective," Manav Modi, bullion analyst at Motilal Oswal Financial Services, said.

Investors will keep a close eye on US non-farm payrolls data and CPI, which are due out before the Fed's interest rate decision Dec. 18, to get more clarity on the Fed's rate trajectory. They will also watch out for the interest rate decisions of the Reserve Bank of India, European Central Bank, Bank of England, and Bank of Japan.

Singh of ICICI Securities said gold is likely to find support at $2,540 an ounce. If that level is broken, then gold might fall to $2,500-$2,480 levels. MCX gold February is likely to slip towards INR 75,000 per 10 gm, if it continues to trade below INR 78,000 per 10 gm. If gold slips below INR 75,000, then it could dip further towards INR 74,000 per 10 gm.

Following is a summary of the poll by Informist on gold prices in December and details of estimates by respondents, in alphabetical order:

End

US$1 = INR 84.73

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Rajeev Pai

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