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Gold to rally, near-term as it finds buyers at current price levels

Metal may fall again in late June or July during seasonal lull

Image Credit: Ahmed Ramzan/Gulf News
A jewellery shop at Sharjah Central Souq. Of late, fund managers have become increasinglybearish on gold. The Cyprus government’s announcement to sell gold triggered a global sell-off.
Gulf News

Abu Dhabi: Gold prices are likely to rally in the short-term, supported by a strong physical demand for the precious yellow metal at current prices, especially from India — the commodity’s biggest importer in the world, according to experts.

“A massive physical demand has come in, particularly from Asia which would prevent gold prices from falling further, near-term. There are strong support levels at $1,450 (per troy ounce) and at $1,490,” Pradeep Unni, Senior Relationship Manager at Dubai-based commodities trading firm Richcomm Global Services DMCC told Gulf News.

He said India alone has imported some 20 tonnes of gold in the past few weeks and with a festive season looming on the horizon, more demand is going to kick in in the coming weeks,

“However, there may be a sell-off in gold in late June or July when traditionally, there’s a seasonal lull, or there’s a worsening of the global economic situation,” Unni added.

Gerhard Schubert, Head of Commodities, Wealth Management at Emirates NBD wrote in his research note the week started with a huge sell-off which brought prices down to the $1,325 an ounce level, only to be repeated the following day with sweeps down to the $1,335 level.

Physical demand

“However, there was and is some light at the end of the tunnel as unprecedented physical demand from all over the world started to take advantage of these “low” prices,” Schubert added.

He said gold prices have been able to recover just over $80 from the lows, but it failed to close above the $1,400 level on Friday during the important Comex session.

“The settlement price for the active June gold futures contract is $1395.60 per ounce and that does not convince me yet that the worst is already over. A confirmed close above $1,400 is, in my opinion, needed before a more confidence building scenario can be achieved,” Schubert added.

Of late, global fund managers have become increasingly bearish on gold. The Cyprus government’s announcement to sell gold triggered a global sell-off. Gold was already under pressure on signs of recovery in the US economy, and Japanese stocks hitting record highs after the Bank of Japan announced on April 4 that it would spend 60 trillion yen ($605 billion) in each of the next two years buying bonds and other assets, giving equities purchasers a much needed boost.

According to media reports, US-based brokerage house, Bank of America Merrill Lynch’s metals strategist, Michael Widmer has said the gold prices could fall to as low as $1,200 an ounce before they stabilise.