Bargain-hunting may support gold

MUMBAI: Holdings by international gold and silver exchange-traded funds have come down in the calendar year to January 21, with gold ETFs posting a fall of 0.7% and silver ETFs of 4.82% on a price correction. Interestingly, however, SPDR gold shares recorded a rise in holdings from the year’s low of 1251.43 tonne last Thursday to 1271.77 tonne on Friday — a rise of 1.6% over a single trading session — giving credence to analyst predictions that bargain-hunting at lower levels could support prices.

The fundamental reasons for the correction in precious metals are a more emphasised recovery in the US and the containment of the Euro’s sovereign debt crisis since the beginning of the New Year. “These have dented the safe haven appeal of the precious metals,” said Gnanasekar Thiagarajan, head of commodity research company, Commtrendz.

“So much so,” he added, “that even as the dollar dipped from 1.30 a euro to 1.36 since the beginning of January, gold did not rise.” Gold normally moves inversely to the dollar, rising when that currency dips and vice versa. According to Bloomberg, gold has fallen 5.7% this month which would be the worst start to a year since a 6.3% drop in January 1997. At the time of writing on Monday, gold was down 4.7% at $1348.6 an ounce (31.10 gram) since January 3 while silver shed 10.3% to trade at $27.53 an ounce over the period.

Though it’s tough to take a call on where precious metals could be headed, analysts such as Thiagarajan and Harish Galipelli from JRG Wealth Management said it could persist till the second quarter.