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Gold Futures Likely To Gain On Physical Demand, Weak Rupee

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Gold futures in India are likely to edge higher this week, supported by an improvement in physical demand and on expectation of a slowdown in redemption from gold exchange traded funds.

At 5.32 p.m., the actively traded gold contract for June delivery on the Multi Commodity Exchange (MCX) was 0.03 per cent higher at Rs 26,415 per 10 grams.

Gold prices surged Rs 365 to Rs 27,415 per ten grams in the national capital on 27 May on sustained buying by stockists and a firm global trend.

Silver followed suit and gained Rs 580 to Rs 44,880 per kg on increased offtake by industrial units and coin makers.

Read Also: Gold Eyes Longest Downturn Since 2009

RBI Restricts Banks Lending Against Gold
The Reserve Bank of India (RBI) said on Monday banks would not be allowed to give loans against units of gold exchange-traded funds (ETFs) and gold mutual funds.

As these products are backed by bullion and primary gold, the restriction on grant of loan against gold bullion will be applicable to loan against units of gold ETFs and units of gold mutual funds, the RBI said in a statement.

The RBI also said that while giving loan against gold coins sold by banks, the lenders should ensure that the weight of the coins does not exceed 50 grams per customer.

In a separate statement, the central bank said no advances should be given by non-bank financial companies (NBFCs) against bullion, primary gold and gold coins.

The RBI also said NBFCs should not give loans for the purchase of gold in any form including primary gold, bullion, jewellery, coins, units of gold ETFs and units of gold mutual funds.

Market Consolidating
The market has been consolidating around the current level. There was continuous redemption from gold ETFs, but at the same there was huge physical demand," said Harish Galipalli, head of commodities research at JRG Wealth Management.

"Going forward, ETF redemptions will slow down and that, along with improved spot demand, should help gold in edging higher," Galipalli said.

The June contract may rise to Rs 26,800 this week, he said.

Gold futures have shed nearly a fifth after hitting a peak of Rs 32,464 in November last year, inducing retail demand in the world's biggest consumer of the precious metal.

In overseas market, gold rose on Monday, extending its gains after its strongest week in a month, as the dollar slipped and European stock markets steadied, while physical buying remained strong in Asia.

"The rupee is struggling to hold at current level. Further depreciation can increase appeal for gold," said a Mumbai-based gold dealer with a private bullion importing bank.

The rupee, which is trading near its lowest level in more than eight months, plays an important role in determining the landed cost of the dollar-quoted yellow metal.

Silver for July delivery on the MCX was 0.23 per cent higher at Rs 43,575 per kg.

Firm Sentiment
Traders said sentiment remained firm as gold rose in global markets. Buying by central banks and signs of increased physical demand also countered outflows in investor holdings.

Gold in Singapore, which normally set price trend on the domestic front, gained 0.5 per cent to $1,393.63 an ounce and silver by 0.9 per cent to $22.58 an ounce.

On the domestic front, gold of 99.9 and 99.5 per cent purity surged by Rs 365 each to Rs 27,415 and Rs 27,215 per ten grams, respectively.

The yellow metal had gained Rs 100 in the previous session. Sovereign followed suit and rose by Rs 100 to Rs 23,800 per piece of eight grams.

In line with a general firm trend, silver ready advanced by Rs 580 to Rs 44,880 per kg and weekly-based delivery by Rs 120 to Rs 43,595 per kg. The white metal had gained Rs 300 in last two sessions.

Silver coins also spurted by Rs 1,000 to Rs 76,000 for buying and Rs 77,000 for selling of 100 pieces.