Gold prices may drop to Rs 25,000 by December 2015

Domestic gold prices have recovered 5.5 per cent in the past two months, rising to Rs 27,252 per 10 grams on May 15 from Rs 25,838 per 10 grams on March 16. However, the trend may reverse with the yellow metal ending the calendar year on a weak note.

Of late, a string of weak economic data from the US has been the dominant factor for positive momentum in gold prices.

The US gross domestic product in first quarter 2015 expanded at an annual rate of only 0.2 per cent, the weakest in a year and below expectations. Growth in the US manufacturing sector dipped more than expected in April while home sales recorded their biggest drop in more than one-and-a-half year in March. A weakening of the dollar and the poor economy data boost safe-haven demand for gold.

Prathamesh Mallya, senior research analyst, non agri commodities, Angel Commodities Broking, says: "In addition to the US economic data, developments in Greece have also contributed to rise in gold prices since past few weeks. It pledged to its euro zone partners in February that by the end of April it would agree with creditors on a comprehensive list of reforms to get 7.2 billion Euros remaining from its bailout. However, it is still unable to do as promised creating a wobbly situation for financial markets across the globe."

Jayant Manglik, president, retail distribution, Religare Securities , says,  "In international markets gold prices have moved up more than 6 per cent after the US growth slackened in the first quarter and the job market appeared to be soft. The American economy has a significant impact on gold prices, a good American economy will keep gold prices down and a bad economy drives investment into gold for safety. The deferment of the interest rate hike in America was also a step in the same direction. In India, the depreciating rupee added to the rising gold price."

Prices of the yellow metal had tanked about 8 per cent during the financial year ended March 31, 2015.

Demand-Supply scenario (Global)
Global gold demand dipped by 1 per cent to 1,079.3 tonnes in January-March 2015. Total investment demand grew moderately to 278.8 tonnes during the period, slightly higher than demand for Q1 in both 2013 and 2014 (at 260.1 tonnes and 268 tonnes respectively).

Global gold supply stood relatively flat at 1,089.2 tonnes in the first quarter of the ongoing calendar year compared with 1,093.3 tonnes in the same period last year.

Factors to watch
Before investing in gold one should always look at the following factors:

• The intrinsic factor for any commodity, including gold, is supply and demand figures.
• Policies of the central banks across the globe: For instance, winding of easy monetary policy in the US, quantitative easing in Euro-zone and Japan to propel growth.
• Investment demand: SPDR gold trust (the widely tracked benchmark across the globe) reflects investor's sentiment for the yellow metal. Any significant outflows or inflows determines the trajectory of gold prices in the long run.
• Spate of economic indicators from the US impacts the dollar index. Dollar index and commodities have inverse co-relation and the yellow metal closely tracks the index.
• Macro economic situation, which includes international indicators like GDP growth rates, inflation, interest rates and energy prices

Mallya of Angel Broking is looking bearish on further movement of the yellow metal. He says: "By the end of December 2015, gold price at the Multi Commodity Exchange might head lower towards Rs 25,000 per 10 grams. Concerns over a Greek exit from the euro area have failed to ignite a strong buying trend, they continue to bubble beneath the surface. Similarly, expectations regarding a US rate hike in the third quarter are largely priced into the market and there is only limited scope for Fed policy to sideswipe demand."