Gold may witness higher towards Rs 30500- 30800/10gms in short term

Gold prices took a breather last month to close in green amid rising tensions between Russia and the West over Ukraine. Also World Gold Council indicated that the gold demand in China, the largest consumer market for gold would rise by around 25% to at least 1,350 metric tons in the next four years, on the back of rise in wealthy population in the nation. Moreover, concerns over the conflict between Russia and Ukraine escalated during the month after U.S. Secretary of State John Kerry warned that Washington was ready to step up sanctions on Russia, supporting the bullion’s prices. The West accused Russia of leading a separatist revolt in eastern Ukraine after it annexed Crimea last month leading to geopolitical tensions across the region. Gold, seen as a safe haven investment, usually benefits from such geopolitical turmoil.

However prices remained capped as gold and silver imports into India, the world's second-biggest buyer, dropped 40 percent to $33.46 billion in 2013/14 whereas March imports were down 17.27 percent y/y to $2.76 billion. SPDR also posted 8.39-tonne outflow, biggest since December 2013 during the month. In China, a report pointed to a slowdown in growth pace in the first three months of this year to 7.4 percent, marking the weakest in six quarters.

The Fed’s March meeting minutes also showed that policymakers discussed whether to keep interest rates at record lows until inflation moves higher, and did not elaborate on a possible timeframe for when rates could start to rise. U.S Nonfarm payrolls increased by 192,000 new jobs last month, compared with a 197,000 rise in February and less than an expected 200,000. The unemployment rate was unchanged at 6.7 percent.

On the physical market front, banks in China imported less gold over the past month as demand waned after the festival season, while cheaper prices at home due to a softer yuan also curbed overseas purchases of the precious metal. Earlier in the month, gold prices drew some support after Iraq's central bank said its gold reserves had reached 90 tones after it bought 60 tones over the past two month. The recent rift between Russia and the West and escalating geopolitical tensions is again likely to push investors towards the safe haven gold as an investment avenue. In addition, gold supply may witness a disruption as Russia is the fourth largest producer of gold globally.

Gold prices managed to close marginally higher in the previous month after witnessing heavy corrections in the month of March this year as it came down from above Rs30,000/10gms to sub 28000/10gms levels during the first week of April month. However, bargain hunting at lower levels gave support to the prices. Technically 27500/10gms is a good support emerging for gold prices at MCX while $1260-1250 per ounce is the support emerging at COMEX from where the prices are likely to bounce. Sustained closing above Rs 29000/10gms mark may provide enough impetus to the counter to take it higher towards Rs 30500- 30800/10gms in short term. With bulls yet to emerge in the market, we recommend the approach of staggered buying in gold starting at current levels to eye above mentioned higher levels as targets for long term.