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.
-
Previous blog -
"Gold Bounces Back: RSBL"
http://riddisiddhibullionsltd.blogspot.in/2015/12/gold-bounces-back-rsbl.html
