Friday, October 25th 11:23 AM IST
India Gold futures backwardation signals short supply: Kotak
# monsoon # gold futures # backwardation # contango
A good monsoon augurs well for precious metals in India but this year government curbs on imports could impact supplies.Government restrictions has resulted inmarginal imports in last few months however supply situation may improve over coming months as market players get accustomed to new norms.
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MUMBAI (Bullion Street): Gold market continues to remain bearish but there is evidence of of short supply or tightness in the market due to backwardation in the futures market, according to Kotak Commodity Services Ltd (KCSL). Backwardation means near month contracts are trader at higher prices compared to farther month contracts.
At the start of 2013, gold futures was in steep contango (near month prices much lower than far month contracts). The curve flattened in May and June before moving into backwardation in September.
Indian gold demand usually slackens in Q3 during monsoon. Higher purchases early in the year and confusion over government measures on imports may also have pushed investors to sidelines. China has continued to promote investment in gold. Uninspiring performance of stock market also increases allure of gold as an alternative asset. However slower economic growth and price volatility may have affected demand.
A good monsoon augurs well for precious metals in India but this year government curbs on imports could impact supplies.Government restrictions has resulted inmarginal imports in last few months however supply situation may improve over coming months as market players get accustomed to new norms. WGC estimates India demand to rise to 300 tonnes in Q4 with yearly target near 1000 tonnes. Gold smuggling is on the rise in recent times due to increased import duty and curb.
MCX Gold price after making all time high at Rs. 35074 has witnessed sharp sell-off falling more than 10% in last two months. However, recently price has taken support at its previous peak placed at Rs.28000 level.
Also, on the weekly chart as shown above price made bullish engulfing candlestick pattern. Bullish engulfing is the reversal pattern indicating end of the downtrend.The 14-period RSI is also trading above the 50 mark signaling positive momentum for the price.
The price is now likely to move higher towards resistance line R2 placed at Rs. 32464. Hence it is advisable to buy mcx gold for the immediate target of Rs.32464 on the upside. Strategy- Buy MCX Gold on dips towards 29200, SL at 27385 (on closing basis) for the target of 32464, according to Kotak Commodity Services Ltd (KSCL).
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