Two consecutive closings above Rs 27,000 will be bullish reversal and in this condition we can expect the yellow metal to rise towards Rs 27,600-Rs 27,900/ten gms.
In an interview with Ajeet Kumar of Zee Media Corp, Rajiv Kapoor, Head Commodities, Trustline shares his views on gold price trend, investment and outlook.
If government imposes new import restriction norms (mainly gold import duty/currently import duty on gold is at 10 percent), how will it impact the gold prices?
See, the government is aiming to discourage Indians to block their investment into gold that will not only the authorities in keeping the current account deficit (CAD) under control but would also contribute majorly towards productivity.
If the government decides to further hike import duty, it will make gold expensive in the hands of Indians but internationally it will be perceived negatively.
Will the new import restriction norms create supply crunch and add more premiums to gold in domestic market?
Of course! Further tightening of import norms will create shortage in physical market and accelerate the premiums domestically over international markets.
We are currently in a downtrend market. Will the current downtrend sustain in the days to come?
It is a very important and difficult question to answer. Anyway, we can evaluate few things as we have already seen major price destruction in gold prices internationally in last three years. Gold made its all time high in September 2011 by hitting a level of USD 1920, since then, prices have eroded 40 percent of its value. This indicates that gold is in clear downtrend.
If you see, dollar is consistently rising on the back of strong US economy numbers and discouraging investors to invest in gold. This is clearly reflecting in SPDR’s (world’s largest gold ETF) holdings, which are at seven year lows now.
Is a deeper retracement or a rebound ahead for the yellow metal?
Gold has already given decent bounce back from USD 1130 to USD 1200. Now, prices are waiting for further triggers which will decide the trend. See, in spite of strong US GDP numbers, gold is holding around USD 1200. However, for further rally, it has to sustain above USD 1210. In case prices are able to sustain above USD 1210, we can expect it to move towards USD 1250-USD 1260.
What is your outlook for gold price in the near to medium term? (both domestic as well international)
Two consecutive closings above Rs 27,000 will be bullish reversal and we can expect it to rise towards Rs 27,600-Rs 27,900/grams. Internationally, in case prices are able to sustain above USD 1210, we can expect it to move towards USD 1250-USD 1260.
Do you believe gold is still an effective way to preserve capital?
Yes, especially when riskier assets like equities are heading towards new highs.
Can you suggest some long-term reasons why it’s still a good idea to invest in gold now?
Ideas are simple as gold is always perceived as safe haven investment, best hedging tool against inflation and it also provides protection against any kind of natural, political or economic surprise or uncertainty.
In your view, what are the three biggest downside risks to gold right now?
Consistent strength in USD, lower inflation and gradual recovery in global economies. In India, there is a special risk of sudden reduction in import duty which is currently looking impossible for at least another six months.
What are the three biggest upside triggers to gold right now?
1.Further increase in import duty by Indian government will make gold expensive for Indians.
2. China's economic situation is looking little fragile which may compel the government there to take initiatives to further stimulate the economy. This can extend support to gold prices.
3. Weakness in USD against other currencies as the green back is trading at quite higher level.
Is it the right time to invest in gold?
Gold price has already seen significant correction internationally from USD 1920 to USD 1130. Although, long-term trend is still looking very weak, but bounce back in prices can be expected towards USD 1300 to USD 1320, which comes 25 percent of the fall from USD 1920 to USD 1130.
What's the best way to invest in gold now? Physical buying/gold savings fund/ ETFs/ futures/ others?
Physical buying or ETF are good alternatives.
Will gold prices below the level of USD 1,000 per ounce sustain in future? Will mining and production be viable at that level?
Gold prices below USD 1000 per ounce will be possible once it breaks and sustains below USD 1130 (which its recent lows). Gold mining cost is somewhere between USD 1000-USD 1100, thus prices near or below USD 1100 could mean production cutbacks.
