TRICKY WEEK FOR GOLD: RSBL

By Mr. Prithviraj Kothari, MD, RSBL

Following a 3 year trend, gold is once again on a decline, losing 9.8 percent of its value this year.

Gold, which touched a five-year low last week, was little changed during the start of the week, Prices fell on Thursday as a stronger dollar reduced the appeal of the metal as an alternative asset.

Gold futures remained lower on Thursday, after data showed the number of people who filed for unemployment assistance in the U.S. rose to the highest level in five months last week, but remained in territory usually associated with a firming labor market.

The U.S. Department of Labor Said the number of individuals filing for initial jobless benefits increased by 13,000 last week to 282,000. Analysts expected jobless claims to hold steady at 269,000 last week.

The dollar index, which measures the greenback’s strength against a trade weighted basket of six major currencies, was up 0.4% to 97.72. Dollar priced commodities become more expensive to investors holding other currencies when the greenback gains.

On Wednesday, gold eased up $1.20, or 0.11%, in familiar trading range, as market players braced for the first U.S. rate hike since 2006 next week. While investors widely expect the Federal Reserve to raise interest rates at its December 15-16 meeting, they anticipate the pace of increases to be gradual amid concerns over tepid growth overseas and divergent monetary policies between the U.S. and other nations.

Gold declined further on Friday and was headed for the seventh weekly drop in eight weeks as investors positioned for a looming U.S. rate hike.

If the Fed raises rates, gold will witness immense volatility. A robust dollar was limiting interest in gold. The greenback rose for a second session on Friday, extending a rebound from a one-month low on expectations of a rate hike.

A higher dollar makes greenback-denominated gold more expensive for holders of other currencies.  Weakness in oil was also hurting bullion. A slide in oil could trigger fears of deflation, a bearish factor for gold, which is often used as a hedge against oil-led inflation.

 A strong U.S. nonfarm payrolls report last week cemented expectations of a rate hike at the Federal Reserve’s policy meeting on Dec. 15-16.

Traders have been restrained to stride into the market before the Federal Open Market Committee (FOMC) convenes next Tuesday and Wednesday.

Gold has witnessed obstinate gusts, as dollar, real rates; commodity prices and volatility have all not motivated investors to increase their exposure to the yellow metal.

The approaching Fed rate hike, has been one of the most influential factors that has put a block in the price rise of gold. And if any such hike is announced then gold prices might fall to $950 in the near future.

Recently hawkish Fed member statements have essentially turned the meeting into a guaranteed launch of the US policy normalization.

Industry watchers are largely expecting the US Federal Reserve to lift its federal fund rate next week for the first time in almost a decade after positive US payrolls data in the recent months.

The first hike in nearly a decade is expected to dent demand for gold, a non-interest paying asset.

Gold is going nowhere as investors expect trading within tight ranges before next week’s Federal Reserve meeting, where policy makers are forecast to raise interest rates for the first time since 2006.

Traders are expecting that borrowing costs will be increased at the Federal Open Market Committee gathering on Dec. 15-16, a decision that would dank the appeal of bullion because it doesn’t pay interest. Gold has swung between gains and losses the last two weeks as Fed Chair Janet Yellen, along with Fed Bank of St. Louis President James Bullard, have said the pace of tightening will be gradual.

Now the market waits impatiently for the Fed with one week to go.

The primary purpose of this blog by Prithviraj Kothari - MD, RSBL, is to educate the masses of the current happenings in the Bullion world.

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