Gold may plunge to Rs 20,500 level, says India Ratings

Sanjeev Sharma

Tribune News Service

New Delhi, July 29

The fall in gold prices may not be over yet. Maintaining a negative outlook on domestic gold prices for the current fiscal, India Ratings has said in the event of a US rate hike, gold prices could hit Rs 20,500 per 10 grams.

In a report, India Ratings said movements in gold prices will largely depend on the US interest rate decision. In the event of a US rate hike, global gold prices could drop and range between $900-1,050 per ounce. As such, the domestic price of gold may decline and range between Rs 20,500-24,000 per 10 gm from the current levels.

Gold prices recovered marginally in the domestic bullion market here today on renewed buying support.

Standard gold (99.5 purity) rose by Rs 55 to settle at Rs 24,835 per 10 grams from Tuesday’s closing level of Rs 24,780. In worldwide trade, gold traders were awaiting the outcome of US Federal Reserve’s policy decisions amid fresh round of rate hike speculation.

The slower offtake in the two large consuming markets is part of the fall in gold prices. India Ratings report says that China and India form close to half of the total world demand for gold and they have been maintaining their pace of purchases around the 2011-2012 levels. The overall global gold demand during the next 12 to 18 months is likely to grow at a low single-digit rate if global consumption stays weak.

As per the report, central banks on an average in the past six years have been the net buyers of 460 tonne of gold annually. Gold prices may weaken with the expectation of an increase in the US real interest rates.

India Ratings says that if the gold price behaviour during September 2012-June 2013 is tentatively used as a benchmark, an increase in US interest rates may cause gold price to fall by 20-25%.

Total known inventory of gold exchange-traded funds had peaked at 2,632 tonne in December 2012 and declined around 65% to 1,600 tonne in June 2015.

Expressing reservations on the gold monetisation scheme, Veerappa Moily, chairman of the Parliamentary Standing Committee on Finance, said today the government will have to revisit the scheme as stakeholders in the sector have expressed reservations highlighting various aspects as to why this scheme might not take off.