Worst over for gold? No, say commodity experts

As spectre of the first hike in US interest rates in nearly seven years looms, the outlook on gold is only getting murkier. Even as some respite was seen on the metal's counter on Friday, with the precious metal reclaiming part of the lost ground after falling to a near-six-year low of $1,045.85 early on Thursday, experts believe it is not out of the woods yet.

Gold prices rallied nearly 1 per cent overnight after the European Central Bank's monetary easing measures fell short of expectations, boosting the euro and sending the dollar to its lowest in a month.

Commodity experts believe that the yellow metal may continue to face the heat in the near future given a rate hike by the US Federal Reserve looks imminent in the December 15-16 policy review.

Fed Chair Janet Yellen, speaking before Congress' Joint Economic Committee on Thursday, said the United States may be "close to the point at which we should be raising" rates.
 
Speaking to BT Online, Kedia Commodities' Ajay Kedia said gold prices are likely to fall another 7-8 per cent in the coming six-eight months, if US raises rates. "If gold breaches the psychological level of $1,000 per ounce in the next three-four months, we may see it falling severely towards $840-$800 per ounce levels," Kedia said.

In a report published on Thursday, brokerage Angel Broking said gold is facing selling pressure in the medium- to long-term due to the looming US rate hike. "Gold prices could drop to $1,000 if the Fed raises rates in December while MCX gold February contract prices might possibly head lower towards Rs 24000/10 gms-mark," the report said.

Higher rates tend to weigh on non-interest-paying gold.
 
Sugandha Sachdeva of Religare Securities said another cause of worry is a fall in demand for the yellow metal. Gold prices aren't likely to recover significantly until the event-risk (Fed's December meet) is gone, she said.  "We are eyeing $1,040-$980 at the Commex in the short-term. Having said that, the depreciation of rupee will support domestic gold prices," Sachdeva added, saying the outlook nonetheless remains weak. Bargain hunting by jewellers and retailers will also support prices in the long-run.

"If gold breaches Rs 24,800-level, it may head to Rs 24,400. This is a major support area...Levels around $980-$1040 offer a strong support area from where prices look to rebound. I do not see it breaking this level very soon," she told BT Online.
 
From a long-term perspective, Sachdeva advises to invest in gold around Rs 24,400-level, albeit in a staggered manner. Gold price (spot) closed at Rs 25,530 per 10 grams in Delhi on Friday.