Gold prices slip, outlook turns bearish

With the Greek impasse over, SPDR Trust’s holdings have slid to 2008 levels





Gold prices are continuing to spiral down without check. Last week, they touched a five-year low of $1,131/ounce and closed at $1,134/ounce, down 2.5 per cent for the week. Holdings of the largest gold-backed exchange traded fund, SPDR Gold Trust, dropped by 11 tonnes to hit 696.25 tonnes — the lowest this year and below levels of August 2008. The US CFTC data shows that the volume of short positions in gold futures crossed 1,43,000 last week.

The last time it crossed this level was in July 2013.

Gold prices were hit by speculative short selling in the futures market as fears of a Grexit faded away. The Greek parliament passed the bailout package demanded by the lenders, which prompted speculators to go short on the metal.

Other precious metals, including platinum and silver, also remained under pressure. Platinum prices dropped below $1,000/ounce mark and closed at $994.3/ounce. In the US, the Federal Reserve has reiterated that it is on course for a rate hike in 2015. Inflation data supported this view as CPI data released on Friday showed that prices inched up in June by 0.3 per cent as expected — the fifth consecutive month of increase. The housing starts data too came in much stronger than expected.

The US dollar index gained to 97.862, from 96.025 in the previous week.

In India, gold continued to quote at a discount to international prices. The discount was $2.5/ounce. A few weeks ago, the discount was as steep as $8/ounce. However, demand does not seem to be picking up despite weak prices. In June, India’s gold imports were 37 per cent down from a year-ago period to $1.96 billion.

Cues to watch

There is a possibility of gold prices going up as short covering picks up pace, with the end of the Greek impasse. In 2013, when short positions in gold increased sharply between June and July, it was followed by a sharp rally in prices. From about $1,180/ounce in June, gold prices hit a high of $1,433/ounce in August.

In June, when selling in gold futures began, gold price was at $1,351. However, be cautious, as bearish sentiment towards gold is strong, with the Federal Reserve set to hike rates and the dollar gaining strength by the day. This week, the US economic calendar starts with home sales data on Wednesday.

This will be followed by the usual weekly jobless claims data on Thursday. Friday will see the release of new home sales numbers.

On the charts

Gold and silver are languishing near their lows and look very bearish on the charts. Gold prices have straddled the range of $1,130-1,170 for some time. However, now that $1,135 is broken, on the downside the metal can test even $1,125 and then $1,100.

In India, gold prices may take support if the rupee weakens. Last week, MCX Gold contract was down 2 per cent and MCX Silver was down by almost 4 per cent. The rupee weakened marginally against the dollar and closed at 63.47.

If the rupee weakens, MCX Gold may rise to ₹26,000 and then ₹26,800. But on the downside, the first support is at ₹25,450 and the next at ₹25,000. MCX Silver appears quite bearish on the charts, given the weak international prices. It tested a low of ₹34,121 last week and closed at ₹34,200. This week, the contract may decline to ₹33,000. The upper bounds are at ₹35,800 and then ₹36,500.

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