By Mr. Prithviraj Kothari, MD, RSBL
Firstly I would like to congratulate all the Rio Olympic representatives of India who worked so hard and attained commendable feats for our country. While we saw Indian achieving remarkable feats, at the same time gold prices in the domestic market were shining in spite of a global downtrend.
Where on one hand gold in the global markets was down 0.34 percent at $1,347 per ounce, on the other hand the yellow metal in the national capital, gold of 99.9 and 99.5 per cent purity commenced the week higher at Rs. 31,130 and Rs. 30,980 and advanced to closed at Rs. 31,250 and Rs. 31,100 per 10 gram respectively, showing a rise of Rs. 175 each.
Markets remained closed on Monday for 'Independence Day' and Thursday for 'Raksha Bandhan'. Bullion traders said increased buying by jewellers to meet festive season demand from retailers amid a firm global trend mainly kept precious metal prices higher.
While Makar Sankrant marks a pause to festive celebrations, on the other hand Raksha Bandhan marks the onset of the festive season in India.
Gold has seen a sharp upsurge in demand on a sudden jump in Japanese yen against the dollar. Crude oil prices have also increased over the last few months. With the investment buying continues, gold is seen touching $1400 an oz in global markets translating thereby setting a new record in near future.
Coming to international markets, analysts hold the dovish July policy meeting minutes issued this week responsible for the decline in prices.
Interest rate expectations are the driving force behind the recent moves in both the dollar and gold. Expectations of higher interest rates here in the U.S. support a stronger dollar while they weigh on the price of precious metals.
Interest Rate Hike- Gold prices slipped on Friday, weighed down by a strengthening dollar after two Federal Reserve officials' comments that increased expectations for an interest-rate increase this year.
Gold is sensitive to higher rates which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar in which it is priced. The week has seen a run of mixed signals from Federal Reserve policymakers.
San Francisco Fed President John Williams on Thursday joined a growing chorus of his colleagues signalling support for a U.S. interest rate hike in coming months. New York Fed President William Dudley reinforced his confidence in a possible rate hike for a second time in the week. Dallas Fed President Robert Kaplan, however, saw limited room to manoeuvre on rates.
US Dollar- The dollar against a basket of six major currencies was up about 0.27 percent at 94.414. The current ‘ultra low’ interest rate environment has sent global investors on a search for yield. Hence any prospect of an interest-rate increase in the U.S. makes U.S. dollar investments more attractive to international investors, leading to an increase in the value of the U.S. dollar vs. other currencies across the globe.
The U.S. dollar, after tapping a seven-week low this week, strengthened Friday, cutting demand for precious metals, which are priced in the currency.
SDPR- Among exchange-traded funds, the SPDR Gold Trust GLD, -0.88% was 0.7% lower. Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell 0.2% to 955.99 metric tons in the week through Thursday, according to Bloomberg data.
ECB- Meanwhile, European Central Bank rate setters agreed not to discuss any policy change at their July meeting and to keep market hopes for more stimuli in check, minutes showed on Thursday.
U.S. Jobs report- Reports showed the number of Americans filing for unemployment benefits fell more than expected last week, while manufacturing activity in the U.S. Mid-Atlantic region saw a mild improvement this month. Members of the Fed's rate-setting Federal Open Market Committee were generally upbeat about the U.S. economy and labour market, but several said any slowdown in future hiring would augur against a near-term rate hike. U.S. economic data will continue to offer clues on the Fed’s next move. Fed Chairwoman Janet Yellen will also speak at a conference in Jackson Hole, Wyo. next Friday. Admittedly, a very strong U.S. labour market report in early September could already be enough to prompt the Fed to hike interest rates next month.
Still range bound, gold looks to break through USD $1,360 as the possibility of a September rate rise tempers.
The primary purpose of this article by Mr. Prithviraj Kothari is to
educate the masses of the current happenings in the Bullion world.
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