By Prathamesh Mallya
Gold has been trending lower in the past fortnight with a fall of around 2.5 per cent in commex prices while that of MCX gold has come down by 1.53 per cent.
Rising US treasury yields, stronger dollar index and ease of global political concerns have been the prime reasons for the gold soft patch. Moreover, expectations that the Federal Reserve would raise interest rates three more times in 2018 after strong US data in the recent week supported the dollar.
Money managers have been consistently liquidating their net longs in gold for the past five weeks when these stood at 1,72,834 contracts as on April 1, and the current net longs as on May 6 read 51,985, suggesting that investors interest in gold is dwindling.
Easing US-China trade row
Political risk has been on a downturn after comments from the United States that it would likely reach a trade agreement with China, with officials from both sides ready for negotiation and avert another bout of trade war. In a recent meeting in Beijing, the US has asked China to cut its trade surplus by $200 billion while the Chinese officials have sought to get Washington to ease national security reviews of Chinese investments. Although there are a lot many issues to be discussed, for the time being, the trade war scenario has been averted.
European Central Bank chief Mario Draghi played down concerns over softness in the euro zone economy as the ECB sought to bolster expectations of a gradual withdrawal of the ECB's monetary stimulus.
India gold story – Demand slides 12% in Q1 2018
High domestic gold prices have played a dampener for demand in India in 2018. According to the recent report from the World Gold Council, demand in India has eased by 12 per cent in the first quarter to 115.6 tonnes compared with around 131.2 tonnes in January-March 2017. Transition to GST by the unorganised sector has affected gold demand in India in recent times, which has also led to gold prices trending down.
Outlook
Gold prices have been trading in $1,300-1,360 for 2018 despite the rolling geo-political uncertainties. Although the tensions have eased, $1,300 will act as a psychological support. On the MCX, Rs 31,000 will act as a good support in the domestic market.
We see gold prices to trade lower in the coming fortnight towards the Rs 31,000 mark as a strengthening dollar and optimism in the US serve as push factors.
(Prathamesh Mallya is Chief Analyst, Non-Agri Commodities and Currencies at Angel Broking. Views expressed in this column are his own and do not represent those of ETMarkets.com. Investors should consult their financial advisers before taking any investment calls based on this article)
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