The Hindu Business Line : Gold under pressure; Time to buy?

With gold prices under intense downward pressure, ruling considerably below the psychological mark of $600 an ounce in the international market and at least 15 per cent below the domestic psychological level of Rs 10,000 per 10 grams, it is time to buy gold. London gold (cash) closed at $560. 75/oz and silver at 11.01/oz on Friday. In Mumbai, gold settled at Rs 8,500-8,600/10 gms.

Macroeconomic Concerns

A lot of buying interest was in evidence in the physical market. The prospect of a rally in the market in the immediate future appears remote. Geopolitics has taken a backseat. The dollar has surprisingly continued to remain resilient so far, buoyed by falling crude prices and lack of consensus over the possibility of a genuine slowdown in economic activity. On the other hand, broader macroeconomic concerns have prompted funds to cut their exposure to precious metals.

Notwithstanding GFMS report that European central bank sales were less than the full quota of 500 tonnes for the year ended on September 26, many believe there is more to the story than what meets the eye. A wire agency report on Friday generated considerable interest in the market.

Price Direction

According to the report, the Bundesbank President announced that Germany was not going to sell gold in the third year of the agreement and that German Central Bank was undertaking talks with other central banks to transfer the gold sales to them as `it did in the first two years of the agreement.' Technical analysts have turned more neutral towards gold stressing that price action over the next few days will set the price direction for the medium term.

The downside from the current levels seems to be limited, while there is nothing to suggest that the market would explore any upside anytime soon. In the absence of non-fundamental factors, the demand-supply position continues to haunt the market. It may be time to buy gold on dips. Festival and marriage season in India would of course keep physical sales somewhat buoyant. However, the possibility of dollar weakening towards the end of the year means that the yellow metal could rally in the medium term.

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