Mumbai: India Ratings and Research (Ind-Ra) on Friday maintained a negative outlook on domestic gold prices for FY 2015-16 and said rates are likely to decline to touch Rs 20,500 per 10 grams in India from the current levels if the US Federal Reserve effects a rate hike.
"The agency believes movements in gold prices will largely depend on the US interest rate decision. In the event of a US rate hike, global gold prices could drop and range between USD 900 an ounce to USD 1,050 an ounce. As such, the domestic price of gold may decline and range between Rs 20,500-24,000 per 10 grams from the current levels of Rs 27,000," Ind-Ra said.
The rating agency expects a higher rate hike to cause gold price to fall by 10-25 percent.
However, it said, if the US continues to delay the interest rate hike, while major economies such as Japan and the eurozone continue with their unconventional monetary policy (UMP), the price of gold could creep up and range from USD 1,300-1,350 an ounce in FY16.
Correspondingly, domestic prices could also increase from current levels and trade in the range of Rs 29,500-30,500.
If major global currencies, other than the US dollar (USD), weaken because of economic concerns, even in the absence of a US rate hike there might be brief spells of simultaneous strengthening of gold price as well as USD, it said.
However, this is not a common occurrence, it pointed out.
The agency also believes that the local premium for gold in India will remain stable in FY16.
"Improved import supplies was based on substantial reduction in the FY15 local premiums.
Local premium averaged to an estimated 1 percent in FY15, compared with 4 percent in FY14," it said.
Gold is often considered a hedge against an economic uncertainty and is best reflected in central banks across the world remaining the net-buyers of gold.
The data available till end-December 2014 suggests that central banks were the net buyers of gold from 2008-2014.
Till such time the uncertainty around global growth is reduced, the chances of international gold prices falling below USD 900 an ounce corresponding to pre-2009 levels are remote, it opined.
The overall global gold demand during the next 12-18 months is likely to exhibit a low single digit growth rate. The rating agency said this would be driven by muted global jewellery consumption as well as the continuation of the popular perception of reduced attractiveness of gold investments on the anticipated US rate hike.
Gold mining (around 70 percent of the global supply) output, which has been ramped up since 2008, will have difficulty adjusting to the weak demand, it said.
