Gold prices likely to remain range-bound in near term

The customary gold buying tradition on the occasion of Akshaya Tritiya might see a limited following this year owing to untimely rains, though market experts believe that the yellow metal is still a lucrative investment option for the long term.

In an interview with Ajeet Kumar of Zee Media Corp Ltd, Vandana Bharti, AVP, Commodity fundamental research, SMC COMTRADE LTD, shares her views on whether to buy gold or not, and how gold prices will pan out in the near to medium term.

We are currently in a range-bound market. Is the current trend sustainable?

As such there are no major triggers in gold which might move this metal in either way. Factors such as better return in riskier assets, smooth supply, strength in the greenback and expectation of interest rate hike in US etc., may keep this metal in lower level. On the contrary, some geopolitical tension, central banks buying, expected recovery in demand side may keep the downside limited. There is one more concern in the market that if untimely rains have an impact on the crop production in India, physical demand is likely to be lessened. We know that farmers contribute a lot when it comes to physical buying. In days to come, the counter may hover in a range. In COMEX the range should be of USD 1,140 per ounce on lower side and USD 1,310 per ounce on upper side. In MCX, it should move in a range of Rs 25500-28500 per ten grams.

What is your outlook for gold price in the near to medium term (both domestic as well international)?

In both markets, it may see further recovery. COMEX gold may touch the higher side of USD 1,250 per ounce while MCX gold may see the level of Rs 27,900 per ten grams. Depreciation in rupee may cap the downside of gold in MCX. Though, it is advisable to keep a tight vigil on any announcement by Fed. If there is any news regarding the interest rate hike, it may stimulate selling pressure in gold, which is better known as safe haven metal.

 Do you believe gold is still an effective way to preserve capital?

Yes, I believe so. My answer doesn’t appear convincing in the current scenario, but when we talk about preserving capital, it is for long term. In long term, current rally in equity market may see some pause and the world is not showing much confidence in currencies and thus, one should keep a part of their investment in gold for unpleasant days. It is trading near the cost of production and any decrease in production and geopolitical tension news may support the prices. The average industry cost of production of gold is USD 1,200 per ounce, according to the World Gold Council. 

How big a threat is Fed tightening to gold prices? 

To some extent the Fed factor has already been discounted in the market, which has been already sensed with the massive fall in the prices. US economy is doing well, unemployment rate moved down, inflation is as per the expectation and thus we can expect that interest rate hike may be on the cards, by June 2015. If it happens then we can see further fall in the prices of gold though the downside should be limited.

The accumulated central bank purchases of 477 tonnes in 2014 were the second largest accumulation in 50 years. Will central banks' buying support prices in the coming days?

Yes, despite decline in physical and investment demand, central banks might still maintain the status of net buyers. From the current trend, it is clear that they don’t have full confidence in their economy as well as in currency and they need to invest some of their money in safe haven assets to fight with awful times, if they come. For the fifth successive year, central banks were the net buyers in 2014. Heightened geopolitical tensions resulted in increasing gold reserve by Russia and other Commonwealth of Independent States (CIS) countries.

 Is it the right time to invest in gold?

For short term traders, wait for correction near the level of Rs 26,400- Rs 26,100 per ten grams. For long-term investors they can buy for the target of Rs 31,000 with two years’ time frame.

What's the best way to invest in gold now? Physical buying/gold savings fund/ ETFs/ futures/ others?

It depends upon the profile of investors. Small investors who don’t want to take much risk can opt for ETF’s, as they can start with small amounts. Risk taking investors can go for futures trading and can enjoy leverage of this market, but at the same time risk is also there. Those who are fascinated with physical buying, they can go for jewellery, bars and coins.

Will the low price push up gold demand especially during Akshaya Tritiya?

There is a tradition to buy bullions on the auspicious occasion of Akshaya Tritiya in India. We generally see a surge in physical demand during this time. This year we can expect the same trend, but due to untimely rains, physical buying is expected to be limited.