Ratings & Research (Ind-Ra) has assigned a negative outlook to domestic gold prices for FY15. The rating agency said that the yellow metal is likely to decline in the range of Rs 25,500 to Rs 27,500 per ten gram.
Domestic gold prices will take cues from the likelihood of a decline in international gold prices to between $1,150/oz-1,250/oz during this fiscal from the current levels of $1,300/oz.
US, euro zone growth rates
Fitch Ratings Ltd expects a further recovery in the US and euro zone GDP growth rates in FY15. This is likely to strengthen the US dollar against other currencies. The US dollar Index, which has historically had a negative correlation with gold prices, is expected to remain strong.
The gradual winding-up of unconventional monetary policy (UMP) in the US might cause interest rates to creep up and discourage investments in gold.
Continued risk-on-trade on the back of a global economic recovery could generate limited interest in gold ETF investments and could lead to a further unwinding of gold inventory. However, the pace is likely to be moderate.
Unconventional monetary policy
While the US has initiated the process of winding-up UMP, EU and Japan continue with their loose monetary policy. Given the unsynchronised monetary policy approach among these major nations and ensuing uncertainty over fiat currencies, central banks will remain the net buyers of gold.
Restrictions on gold imports
The expectation of a decline in domestic gold prices assumes status quo on restrictions on gold imports and Indian rupee-US dollar rates.
However, the forecast assumes a substantially lower level of physical premium (importers and traders mark-up) than that prevailed in 2013, given the emerging clarity on gold import policy. In any case, any ease in gold import restrictions will have limited incremental impact on domestic gold prices.
India Ratings said that gold’s characteristics that cause people to use it as a hedge against macroeconomic uncertainties or any perceived debasement of fiat money could lead to the change in the outlook.
Lower-than-expected GDP growth rates in the US and/or EU, geopolitical tensions and China’s financial market uncertainty could cause gold prices to creep up above $USD1,300/oz levels, it added.