-By Mr. Prithviraj Kothari, MD, RSBL (RiddiSiddhi Bullions Ltd.)
All this week Bullion danced to the tunes of Labour report from US.
Gold is down about 28% this year, heading for the first annual loss in 13 years, as solid U.S. economic data has underlined expectations that the Fed will begin curbing stimulus.
The bond-buying stimulus has strongly supported gold prices as it has served to keep interest rates ultra low, an ideal environment for non-yield bearing assets. It so happened that a 2% increase in Gold prices was the biggest one day gain in over a month’s time. This can be attributed to short covering and new fund buying that deal that the FED plan to exit asset purchase scheme will still take time.
Gold prices fell on Thursday but remained range bound after solid U.S. economic growth and jobless claims data; firmed up talk that Federal Reserve will begin scaling back stimulus programs within the coming months. Even though European Central Bank and Bank of England have continued to hold off from any new policy action, markets are fixated on U.S. economic snapshots and any data that gives an idea when the Federal Reserve might start curbing its bond-buying programme.
Gold prices rode a rollercoaster Friday, regaining some ground after Thursday's sharp losses right ahead the U.S. Bureau of Labor Statistics published strong job numbers, to fall sharply after the announcement.
The game was all being played by forecasts.
On Friday, as the US Labour report was released, gold was seen in a different mood.
Gold climbed in volatile trade on Friday, bouncing from session lows reached after U.S. jobs data beat forecasts, as traders who had bet on even larger losses rushed to cover their positions.
The actual figure was higher than forecast at 203,000, compared to consensus forecasts of 185,000. The rate of US unemployment also fell to a five-year low of 7%, but economists suggested the figures were heavily skewed by the US government shutdown in October. Thousands of government employees who were temporarily laid off returned to work last month. Unemployment rate in the US fell to 7.0% from 7.3% in October. Economists predicted a smaller decline to 7.2%.
Meanwhile, the Commerce Department said personal income edged down by 0.1% in October after increasing by 0.5% in September. Economist did not expect the drop, as they had expected income to increase by 0.3%. The market fell immediately after the figures showed that U.S. employers had hired more workers than expected in November and the unemployment rate had dropped to a five-year low of 7 percent, which strengthened the case for the Federal Reserve to start reducing bond purchases as soon as this month.
Gold prices have now erased some of their losses for the week but were still down 1.2 percent after having dropped sharply on Thursday as data showed the U.S. economy grew faster than estimated in the third quarter.
The majority looks through the noise towards the end goal, i.e. tapering and a slow normalisation of US monetary policy which is coming closer by the day. As a result, at this stage it appears as if rallies will simply be sold into, whether the data beats expectations or not. Gold ETFs seems to liquidate on every opportunity, with the latest data showing ETF holdings are down another 113Koz. Silver should follow gold and as a result remains a sell into rallies.
The Federal Reserve, which holds its next meeting on December 17-18, has said the timing of its tapering depends on the health of the labour and housing markets.
The primary purpose of this blog (Prithviraj Kothari's view on Bullion Markets- MD,RSBL (Riddisiddhi Bullions Ltd.)) is to educate the masses of the current happenings in the Bullion world.
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