Rupee acting as a parachute for Indian gold prices

Rupee acting as a parachute for Indian gold pricesGold futures moved lower by almost -1.01% to settled at 28651 pressured by a broadly stronger dollar, as concerns over Greek uncertainty increased after initial attempts to form a coalition government collapsed.

Rupee opened lower today in future trading session and tested once again 53.8750 level as renewed concerns about the euro zone battered riskier assets, setting up the prospect of continued intervention from the RBI. A slowdown in capital flows prompted the Reserve Bank of India on Friday to raise the interest rates banks can offer to on foreign currency deposits by non-resident Indians to encourage them to bring in dollars. The BSE Sensex dropped below 17000 and the rupee slid to 54.1750 per dollar levels on Friday. As a result, the RBI stepped in to announce a series of measures to ease foreign currency flows and increase the availability of export credit in the foreign currency.

Gold in international dropped by almost -4.94% to 1586.45$ that is fall of 78.35$ since the month has started, on the contra on MCX Gold prices dropped by -2.47% only that is fall of Rs. 713.00 (Rs. 28453.00 today low) as support seen from the rupee weakness which shown a drop of -1.42% that had support the price of gold in domestic market to fall further. Meanwhile support seen from the physical demand also as India has just rolled back the 1% excise duty on jewellery which would improve imports going forward, expected to reach about 700 to 750 tons in 2012. Also Chinese imports of gold via Hong Kong went up 600% in the Q1 to about 135 metric tons. The Chinese has bought more each month as price went lower. Chinese gold import is about 540 tons annualized in the last 8 months compared to a year ago.

Weak economic data is seen as an indication that the Fed would continue with its accommodative stance and increases the probability of further QE by the Fed in a bid to prop up the economy. This supported by the US Fed chairman Ben Bernanke as he repeatedly affirms that all available policy tools are still on the table signaling that he does not rule out the possibility of further easing if economic conditions deteriorate. The probability of further easing is what is keeping dollar under check despite the worsening of situation of the peripheral nations in the European region and the monetary injections in form of LTROs undertaken by the ECB. The strength in the dollar is not by its own merits as actually US economy is suffering with bad housing, labor data's. It is aided by the weakness in the Euro which is weighed under pressure from the increasing severity of the sovereign debt crisis and deterioration in the economic health of peripheral nations that show no signs of improvement. The ECB has been trying to paper over the issues facing the PIIGS countries but is far from achieving any meaningful solution to the crisis.

There had been some speculation concerning slowdown of the gold purchases from China on account of slowing growth prospects. Contrary to the same, China's appetite for the metal shows no respite. Gold imports by China increased as rising incomes and concerns about inflation boosted purchases. Shipments were 72,617 kilograms in the first two months, compared with 10,564 kg a year ago, according to Bloomberg. GFMS expects China's jewellery fabrication to rise to a new high in 2012 after jumping 15% to a record 496 tonnes. Investment demand continues to slide whereas central bank buying continues to increase. Whereas, central banks continue to snap up their bullion purchases. Mexico added 16.8 metric tons of gold valued at about $906.4 million to its reserves in March and also nations including Turkey, Russia and Kazakhstan increased their holdings of the metal, IMF data show.

ACTION: A DIP TILL 28150-200 IS GOOD TO BUY WITH STOPLOSS AT 27800 FOR TGT 28600-29300 IN NEXT 2MONTH SESSION.

TECHNICALLY: Now technically market is trading in the range as RSI for 18days is currently indicating 45.73, whereas 50DMA is at 28610 and gold is trading above the same and getting support at 28370 and below could see a test of 28140 level, And resistance is now likely to be seen at 28881, a move above could see prices testing 29110.

OUTLOOK: Gold prices can be volatile or may trade slight lower on account of a multiple factors but look to the economic and financial background which will continues to be positive for the gold. While it's been challenging times for the gold as dollar strengthens (weakness in the Euro/Pound) and amid concern about demand in the top physical markets, India and China. However, the possibility of further quantitative easing will likely support the metal. Also we Indian have a practice whenever there is a sells off in gold, we see buying emerge to take advantage of lower prices.

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Anil ManghnaniRajat BoseVijay BhambwaniAmbareesh BaligaPrakash GabaSudarshan SukhaniAshwani GujralAshu Madan

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