Gold May Witness Downside Targets Of Around Rs27600-27500/10gm

MUMBAI: Gold prices lost steam in the previous month after the FOMC announced a third $10 billion slash in quantitative easing, bringing down its monthly bond purchases to $55 billion. Gold prices had a knee jerk reaction after Fed Chair Janet Yellen said the Fed would probably end its bullion friendly bond-buying pro-gramme this autumn, and could start pushing interest rates high-er around six months later. US non-farm payrolls augmented 175,000 against market expecta-tion of 149,000 in the month of February. The figure in the previ-ous month was 129,000. This also took sheen away from yel-low metal. China's first domestic bond default wobbled the foun-dations of financial market and hit investors' interest, hurting demand from world's largest bullion consumer. China Gold Association said that Chinese demand may fall 17% y/y in sec-ond quarter of 2014.

The euro debilitated after data showing growth in Germany slackened in March, raising the potential for more monetary easing from the European Central Bank. Data from the euro zone as a whole plunged compared with Febru-ary. Earlier during the month, gold prices reached near six-month highs, on persistent politi-cal tensions between Russia and the West over Ukraine along with the ongoing worries of economic slowdown in China. Sanctions by G-8 countries over Russia ignited speculations serious supply crunch for the yellow metal may hit the market as Russia is amongst top 5 gold producing nations in the world. Indian gold imports fell over 70 percent in the final quarter of 2013 from 255 tonnes in the year-ago period and are expected to be half the usual levels at 500-550 tonnes in 2014, if new import rules are maintained, top trade body official said. Also, India's Finance Minister P. Chidambaram indicated that curbs can be revisited only after the final current account deficit numbers, which are expected to be published in early June.

Gold prices succumbed to bearish forces last month after closing in green for two consecutive months and dwindled sharply to breach major support levels on weekly charts. Prices wit-nessed two continuous weeks of selling which made it vulnerable to more down-side as bulls consistently failed to gain strength after being beaten down by sturdy bears. Prices might find some respite after some sup-port came below Rs28100/10gms mark, but this seems insufficient and the counter need to start trading above Rs 28800/10gms mark to con-vince traders to build long positions as the same is seen as stiff resistance for the counter.

However, if prices close below Rs28000/10gms mark, it may hurt bulls' inten-tions severely and they may find it difficult to recuperate anytime soon. In short term, traders are advised to wait for some pullback rally in gold and initiate shorts as long as it is closing below Rs29000/10gms and can look for downside targets of around Rs27600-27500/10gm initially and a breach may imply targets close to Rs26800/10gm as well. At COMEX too , prices are likely to find some sup-port around $1278/oz, but may find it hard to breach $1300/oz and any breach of $1278/oz mark would lead to a further drift towards $1230/oz as well.