Spot Gold prices gained a whopping 2.3% and touched a high of $1,087.9/oz on Tuesday despite a stronger dollar. A strong dollar could not impact gold prices as the bullish sentiment came from higher demand for gold among global central banks.
The move by the International Monetary Fund (IMF) to sell a total of 403.3 tonnes of gold in order to change its income-model boosted gold prices. In its first move, the IMF has sold 200 tonnes of gold to the Reserve Bank of India (RBI) at a cost of $6.8 billion.
India’s gold holdings in the foreign-exchange reserves had dropped significantly from 20% in 1994 to 4% currently. However, the move by the RBI to buy 200 tonnes of gold has lifted gold’s holdings in the foreign exchange reserves to 6%. India has now become the ninth-largest global owner of gold reserves.
In terms of gold exchange holdings, US ranks the first with holdings of 8,134 tonnes, followed by Germany with reserves of 3,412 tonnes and IMF holdings of 3,216 tonnes.
Global central bankers want to accumulate gold as the value of the dollar index is expected to weaken from the long-term perspective. This would translate into a weaker dollar supporting gold prices on the upside.
Hence, the value of gold in the coming years could appreciate further. India could continue to accumulate gold in the coming years as higher dollar related reserves could diminish the reserves status. Appreciating gold could boost the value of foreign-exchange reserves.
The Dollar Index has weakened sharply and at the same time gold prices have gained phenomenally. Prices of gold are expected to rise further and this has initiated the move by the RBI to diversify the foreign-exchange holdings.
A weaker could diminish the value of India’s foreign exchange reserves and hence this could lead to further accumulation of gold by the RBI. This move will help India’s central bank to hedge its downside risk on the foreign exchange reserves front. India’s gold holdings have dropped from over 20% in 1994 to just 4%.
We feel that the RBI could move forward to accumulating more reserves as gold is expected to shine for the years to come. Also, gold is traditionally considered as a safe-haven investment. This development could be positive for the gold market and the yellow metal could test new highs in the coming months.
On intraday basis, Spot Gold prices have immediate support at $1069/$1063 whereas resistance is seen at $1096/$1108. Spot Silver prices shall find support at $16.90/$15.80 whereas resistance is seen at $17.60/$18.00.
MCX October Gold has support at 16440/16250 whereas resistance is seen at 16780/16965. MCX Dec Silver shall find support at 26720/25545 whereas resistance is seen at 27500/27900 levels.
Courtesy: Angel Commodities
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