Gold may loose glitter further; prices set to go south

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New Delhi, Aug 17: Gold prices have dropped a whopping 20.23% on the London Metal Exchange in the last one-month, while silver has fallen by around 33.54% during the same period, pulling along with it the precious metal price in the world's largest consumer India.

The drop has been steeper in the last couple of days with both the metals hitting their lower circuits in Indian exchanges as falling crude oil and a strengthening dollar dispelled all notions about the precious metals extended bull run. It tanked literally across the board, triggering margin calls and unwinding of open interest positions of traders on commodity exchanges.

On Saturday, silver hit two lower circuits and fell more than 10%, soon after opening on MCX. The near month contract on the exchange finally settled at Rs 19,398 per kilogram, down 6.61%, while gold October futures settled at Rs 11,270 per 10 grams, down 1.81% from previous close. The scene was roughly the same in the spot markets, where prices virtually slipped all through the day. Both the leading exchanges increased their margins on silver, which meant additional fund requirement for the traders, but such short duration ahead of another holiday lead to liquidation of long positions in gold as well.

Traders said margin call was triggered by the exchanges as gold and silver dropped sharply in the international markets, which had a cascading impact on the local markets as well.

Usually, on a Saturday, traders in commodities bourse are required to make their margin payments, but the added pressure from higher margins on gold and silver made matters worse.

Meanwhile, trade sources said the situation might remain the same in the coming week as gold prices both internationally and locally are expected to remain weak due to falling crude oil prices and strength of the dollar.