Gold crashes ahead of festivals

Spot gold prices hit a one-year low and slipped below Rs 12,000 per 10 gram in Mumbai while spot gold in London hit a 13-month low of $703.45 an ounce on a wave of long liquidations in the international markets exacerbated by below expected gold sales ahead of Diwali in India, the world’s largest consumer of the metal.

Local gold spot prices fell by 2-3% on Thursday in line with the trends in world markets. Experts said a rising dollar vis-à-vis euro & pound and flight of cash-strapped investors looking to liquidate their position in all commodities pulled down gold.

The euro fell to the lowest in almost two years against the dollar, while the pound traded near its lowest in more than five years. Spot gold traded at Rs 11,640 per 10 gm in Mumbai on Thursday, down by nearly Rs 300 and Rs 11,541 per 10 gm in Ahmedabad, down by Rs 600 per 10 gram over the previous day. On the MCX platform, gold December futures also fell to the day’s low of Rs 11,601 per 10 gram, down by nearly Rs 900 over the previous day.

As the prices of the noble metal fell, gold exchange traded funds (ETFs), once among the top performing funds, too slipped to the bottom. Valueresearchonline.com data shows gold ETFs have given a negative monthly return of 5.93%. Annual returns are still positive, at 22.70%.

The softening of gold prices could not have come at a better time for festival buyers in India. After months of waiting, buyers thronged jewellery shops to make their yearly purchases. Traders said prices inching below the psychological mark of Rs 12,000 per 10 grams should spark good demand ahead of two busiest buying days for precious metals next week.

India imports about 700 tonnes of gold a year, with more than 50% bought in the festival season of October-December.

“Gold price in the international market may now see the $650-level”, said Bhargav Vaidya, a leading bullion expert.

Samir Shah of Riddhi Siddhi Bullion Ltd also said, “Price may slip below $700 an ounce. Gold spot prices in the physical market are expected to fall in the run-up to the Dhanteras and Diwali festivals next week.”

In some cities, such as Udaipur and Indore, sales were in line with the trend of the previous years but in some other places like Ahmedabad and Mumbai, sales were just half of what they were last year, sources said. Silver also eased on lack of industrial demand.