All eyes on India’s gold savings plan

If the new scheme clicks with savers, it could erode demand for physical gold

India’s gold market was quiet last week after experiencing a bout of volatility on the announcement of new gold schemes in the Union Budget.

Market experts outside India believe that if the new scheme clicks with savers, it could erode demand for physical gold, given that India is among the top two markets for bullion in the world.

With Indian households estimated to own about 20,000 tonnes of gold, even if 5 per cent of it were to be unlocked by the new gold deposit scheme, it would reduce the country’s imports by 1,000 tonnes. For 2014, the country had imported 769 tonnes of gold.

Gold prices closed at $1,167/ounce, down 3.8 per cent for the week due to a stronger dollar. The US dollar index moved up to 97.6 from 95.29 in the previous week. This week, the US economic calendar is light with just jobless claims and retail sales numbers due on Thursday.

Watch for the movement of the US dollar, as it is poised at a critical level.

On the charts

 Good US jobs data triggered renewed pressure on gold with global prices falling below the critical $1,200 mark to $1,167. We see a descending triangle pattern in the gold chart.

With price breaking the lower horizontal line of the triangle at $1,180 last week, there is a possibility of a further correction from here. If selling pressure continues, gold may drop to $1,150 and subsequently even to $1,000/ounce.

On any reversal, $1,180 will be the first resistance and then $1,240. Gold traders on the MCX saw spot prices drop to ₹26,012, down 0.8 per cent last week. Though it looks like gold prices in the international market may see some correction, the weak rupee will offer support to Indian gold prices.

On a fall from here, the first support is at ₹25,200 to the target at ₹25,000. But, if the contract edges up, its first resistance will be at ₹26,900 and the next one at ₹27,350 before it hits ₹27,500.

MCX Silver has been consolidating in the narrow range of ₹35,800 and ₹37,000 for a few weeks now. Only when the contract crosses ₹37,200 will there be a possibility for further upside. The first target in such a case will be ₹37,500 and the next  ₹38,400. 

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