Bullion Cues. Discount on gold prices widens in India

Gold prices in India are now ruling at a discount to international prices. Thanks to weak demand, bullion dealers are quoting discounted prices for their inventory. Prices in the spot market quoted at a discount of $8/ounce to the London price last week. This is lower than a $0.5/ounce discount in the beginning of June.

Gold BeES, Goldman Sachs’ gold exchange-traded fund, closed at ₹2,422 on Friday on the bourses, a discount of 2 per cent to its NAV of ₹2,467.68. Spot gold prices declined 2 per cent to close at ₹2,634.9/gram.

Bullion dealers, however, expect demand to catch up in the coming weeks as they expect good monsoon rains will cheer rural consumers.

In the international market, gold prices gave way again. In the previous week, dollar weakness and the deadlock over Greece’s debt talks helped gold prices inch up and cross $1,200/ounce. But the metal has since given up all these gains. It dropped over 2 per cent and ended the week at $1,175.5/ounce.

Silver and platinum too closed in the red at $15.8/ounce (down 1.9 per cent) and $1,082.8/ounce (down 0.2 per cent), respectively. Bullish US data and a stronger greenback weighed on demand for bullion. The US National Association of Realtors said that existing home sales increased 5.1 per cent to 5.35 million units in April — the highest level since November 2009.

Data also showed that the US economy did better than expected in the first quarter of the year; it contracted by 0.2 per cent, against the estimate of 0.7 per cent contraction. The US dollar index gained 1.4 per cent and closed at 95.39.

The only bright spot was the US SPDR Gold Trust, the largest gold ETF, seeing inflows last week. The fund saw its holdings rise to 711.44 tonnes from 701.90 tonnes in the previous week.

This week, there’s a light calendar ahead. Both the US employment situation and weekly jobless claims data will be released on July 2. However, watch out for Greece. The country is set to vote on a referendum on whether to accept a bailout package by creditors in the upcoming week, on July 5. The country needs new funding to avoid default on debt repayments. Markets are optimistic that Greece would reach a deal with creditors by the deadline. If talks go through and the vote favours the bailout package, it would be positive for the euro.

Given that the US is preparing for a rate hike while the EU continues monetary easing, it may be difficult for the euro to gain against the dollar.

However, EU recovery is gaining strength. In June, the EU reported the fastest pace of growth in manufacturing in the last four years. If the euro strengthens and the dollar weakens, gold may receive support.

Technically, gold appears set to move sideways for some time. Since it broke the support at $1,170 and hit $1,168 last week, it may oscillate between $1,170 and $1,200 for more time. Unless price crawls up beyond $1,210, weakness will persist.

In the domestic market last week, with the rupee stable, gold and silver prices took cues from the international bullion market. MCX gold futures, which closed at ₹26,524 last week, down 0.7 per cent, may drop further to ₹26,000 and ₹25,500 this week. The first support is at ₹26,200 and the next at ₹25,800. However, if it bucks the trend and moves up because of a weak rupee, gold can test ₹27,000 and ₹27,400.

MCX silver lost 2.5 per cent last week and closed at ₹35,968, breaking past the key support at ₹36,000.

This week, if it drops further to ₹35,600, it can test ₹34,500. On an upmove, prices may test resistances at ₹36,200 and ₹37,000.