Gold sinks below $1,700/oz as dollar, bond yields climb; down 11.2% in 2021


Gold prices declined after a sharp sell-off yesterday weighed down by a spike in US Treasury yields, a stronger dollar and rising buoyancy around the US economy. The precious metal had given a breakdown trading near $ 1,680/oz level after multiple failed attempts to break past the $ 1,750 resistance in the last couple of weeks.

The yellow metal declined Rs 260 at Rs 44,395 per 10 gram in the Mumbai retail market tracking negative global cues but the steep fall in the rupee arrest the fall. It had slipped Rs 282, or 0.63 percent during last week in the domestic market.

The rate of 10 gram 22-carat gold in Mumbai was Rs 40,666 plus 3 percent GST, while 24-carat 10 gram was Rs 44,395 plus GST. The 18-carat gold quoted at Rs 33,296 plus GST in the retail market.

Gold is on track for its first quarterly fall since June 2018 down $ 212.34 or 11.20 percent in 2021. It has declined Rs 5,807 or 11.57 percent in the rupee term in the same period.

Jigar Trivedi, Research Analyst- Commodities Fundamental, Anand Rathi Shares & Stock Brokers said, “MCX Gold June contract began the holiday-shortened week on a lower side. The weakness in the yellow metal was quite visible via the trend in ETFs. The holding in the SPDR Gold ETF fell to 1,037.5 tonnes as of 29th March from 1,051.78 tonnes as of 19th March.

“The holding at the biggest gold-backed exchange traded fund has fallen by 150 tonnes from a year high of 1,187.95 tonnes as on 4th January 2021. The 10-year bond yield has appreciated to 1.7419%. We expect the sentiment to remain bearish only.”

The CFTC data showed that money managers increased net long positions by 1269 lots in the last week.

The US dollar trades higher at 93.25, or up 0.32 percent against a basket of six rival currencies on safe-haven appeal. The dollar index hit 2021 high of 93.37 during the intraday, the highest level since November 4.

The US 10 year treasury yields inched higher at 1.73 percent, up 1 basis point. The higher yields make non-interest yielding precious metal unattractive investment.

ETF holdings continued outflow as holdings at SPDR Gold Shares fell to 1037 tonnes during the week down from previous week’s 1052 tonnes.

Spot gold plunged by $ 28.88 to $ 1,683.48 an ounce at 1552 GMT in London trading.

MCX Bulldesk decreased 81 points or 0.58 percent, at 13,881 at 21:23. The index tracks the real-time performance of MCX Gold and MCX Silver futures.

Navneet Damani, Vice President, Motilal Oswal said, “Gold prices traded lower as the US yields started to rise and U.S. dollar firmed against a basket of rival currencies, with a rising appetite for riskier assets on the back of economic recovery and higher vaccination rates denting the metal’s safe-haven status.” 

“Market participants are now waiting for U.S. President Joe Biden’s infrastructure spending package which is speculated to be in the $ 3 trillion to $ 4 trillion range. BOE officials last week played down risks of a sustained surge in inflation when Britain’s economy recovers from its pandemic crash, and said that more stimulus might yet be needed.

“Hedge funds and money managers raised their bullish positions in COMEX gold and cut them in silver contracts in the week to March 23, according to CFTC.” 

The broader range on COMEX could be between $ 1680- 1725 and on the domestic front, prices could hover in the range of Rs 44,370- 44,800.

“COMEX gold trades lower near $ 1685/oz. Gold trades weaker weighed down by a sharp rise in US bond yields and firmness in the US dollar amid increasing optimism about the US economy. Also weighing on price is progress on the vaccine front and recovery in Chinese equities and weaker investor interest.

“However, supporting price is rising virus cases and loose monetary policy stance of major central banks. Gold may remain under pressure amid stronger US dollar however only a drop below $ 1700/oz on closing might pull it further lower”, said Ravindra Rao, VP- Head Commodity Research at Kotak Securities.

The gold/silver ratio currently stands at 69.67 to 1, which means the number of silver ounces required to buy one ounce of gold.

Silver prices crashed by Rs 945 to Rs 63,713 per kg from its closing on March 26. The white tumbled Rs 2,157 or 3.22 percent last week in the retail market.

In the futures market, the gold rate touched an intraday high of Rs 44,300 and an intraday low of Rs 43,669 on the Multi-Commodity Exchange (MCX). For the April series, the yellow metal touched a low of Rs 43,320 and a high of Rs 51,931.

Gold futures for April delivery jumped by Rs 325, or 0.75 percent, at Rs 43,870 per 10 gram in evening trade on a business turnover of 198 lots. The same for June slipped Rs 245, or 0.55 percent, at Rs 44,453 on a business turnover of 12,802 lots.

The value of the April and June’s contracts traded so far is Rs 173.85 crore and Rs 2,641.89 crore, respectively.

Similarly, Gold Mini contract for April edged lower Rs 218, or 0.49 percent at Rs 44,525 on a business turnover of 3,941 lots.

Trading Strategy

Tapan Patel, Senior Analyst (Commodities), HDFC Securities

Gold prices witnessed selling with COMEX gold fell to two weeks low on stronger dollar and rise in US treasury yields. The 10 year US Treasury yields rose to 1.70% while the dollar index soared above the 93 mark. The yellow metals traded under pressure on risk-on sentiments ahead of US President Joe Biden’s infrastructure bill push.

We expect gold prices to trade sideways to down for the day with COMEX spot gold support lies at $ 1680 and resistance at $ 1710. MCX Gold June support lies at Rs 44,200 and resistance lies at Rs 44,800.

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