December likely to be more volatile

Just when gold had become investor’s favorites, it started losing sheen. Friday, Gold closed at a one-week low amid investors shifting to riskier assets on the back of a higher dollar and the Federal Reserve's policy statement.

Gold eased to a one-week low on Thursday, as a recovery in the dollar and improved appetite for riskier assets pushed investors away from bullion.

Spot gold fell 0.13 percent to $1,224.09 per ounce, after touching its lowest since Nov. 1 at $1,219.59 Just when gold had become investor’s favorites, it started losing sheen. Friday, Gold closed at a one-week low amid investors shifting to riskier assets on the back of a higher dollar and the Federal Reserve's policy statement.

Gold eased to a one-week low on Thursday, as a recovery in the dollar and improved appetite for riskier assets pushed investors away from bullion.

Spot gold fell 0.13 percent to $1,224.09 per ounce, after touching its lowest since Nov. 1 at $1,219.59 earlier during the day.

Gold prices fell to their lowest in a week on Friday, and were set for their biggest weekly fall since August, on a firmer dollar as the U.S. Federal Reserve indicated they will continue to raise interest rates, lowering demand for bullion.

In the past fortnight we saw the dollar going week on the belief that losses for U.S. President Donald Trump's Republican Party in the midterm elections would make further fiscal stimulus measures unlikely.

But it didn’t take too long for the dollar to get back into action. The dollar has mounted a significant rally. Many reasons were cited for this bounce back-

• The Fed kept interest rates steady on Thursday
• It reaffirmed its monetary tightening stance.
• Robust U.S. economy kept the currency underpinned
• Investors positioned for a Federal Reserve interest rate rise next month
• Political risks in Europe put pressure on the euro and the pound.
• Fears about a no-deal Brexit gave dollar the push
• Growing rift in Europe over Italy's budget
• Reload of long dollar positions by investors
• Vulnerability of European currencies
• Weakening of the Euro over concerns about Rome's tussle with the European Commission over its 2019 budget
• Weakness in Italy's banking sector
• The melancholy in Europe has been good news for dollar
• Easing of China-U.S. trade tensions
• Weak China data
• Weakening euro zone economy is expected to trigger further euro-selling pressure.


All these factors clubbed together strengthened the dollar and hence the dollar rallied to a 16-month high on Monday.

The dollar extended its recovery following a sigh of relief across markets after the U.S. midterm election results, and as investors turned their attention towards the Fed.

Gold has always been keeping a watch on the dollar and moving accordingly. Currently too it is dollar-watching and keeping an eye on the interest rate decisions. Gold has come under pressure because of a stronger dollar. Also the FOMC meeting showed no change in the interest rates. Gold might turn to the bears as any news that is positive for the U.S. dollar and the U.S economy as a whole will bring about a fall in the yellow metal and push prices down.

A lot is expected to happen by the end of year and these activities will sure create volatility on a global level. Ongoing trade disputes. Escalating Saudi- Arabian tensions and Brexit are all in line to occur. December is likely to be more volatile and hence a lot is expected to happen as we get closer to end the year.

Wait and watch approach

Gold was down last week till Wednesday but again gained momentum on Thursday. It saw a sharp rally from Wednesday’s bottom but pulled back once again on Friday.

In 2018, gold was highly influenced by a wide variety of factors -

• Brexit
• Election of U.S President Donald Trump
• Geopolitical events
• US China trade war
• Global equities
• Iranian Sanctions in Venezuela
• Midterm elections
• Cyber attacks
• Collapse of peace talks with North Korea

These all have the highest likelihood of impacting markets in 2018 and 2019 and thus creating volatility which will likely bring about a rally in gold prices.

Since these series of events are either on going or about to happen, markets player are now following the wait and watch approach.

US midterm elections will definitely have a major impact on global currencies and assets across all classes. Hence investors and traders are not being much active and are waiting for something concrete to occur as Midterm elections may stimulate safe-haven buying,”

Interestingly gold has not only bounced, it has shown this behavior in spite of stability in the dollar. Gold is expected to rise further

Interestingly, gold, largely left for dead, has rallied. Not only has gold bounced, but it has done so despite a steady dollar. Which raises the question: Why is gold rallying now? Here are some potential reasons:

Steady dollar - While the DXY Index is pushing against the upper end of its five-month range, the dollar has been relatively stable since May. This is important as a rapidly strengthening dollar, as we witnessed last spring, has historically been a headwind for gold.

Inflation - Besides the dollar, the biggest challenge for gold in 2018 has been rising real rates, i.e. interest rates after inflation. Higher real rates raise the opportunity cost of an asset that produces no income. Between January and early October, real 10-year yields advanced by 50 basis points. However, since then, real rates seem to have temporarily peaked near the levels reached in 2013 and hence its stability will bring in a rise in gold prices.

Volatility - While real rates and the dollar are key fundamental drivers for gold, demand for a hedge against volatility also drives gold prices. With the exception of the brief correction in February, that attribute has not been in demand until recently. Prior to the recent swoon, U.S. equities were well on their way towards another year of double-digit gains. Unfortunately, this pleasant trajectory has been interrupted. Equity market volatility has doubled since early October. This is important, as gold has a history of performing best versus stocks when volatility is spiking.


These factors have historically proved that in such a volatile environment gold always acts as a safe haven asset and a hedge tool. Give this characteristic of gold it’s obvious that any minor crisis will also bring about a rise in the demand for the yellow metal which will further push the prices higher.

Moving to the domestic markets, sales have dampened this Diwali. Physical gold demand in India was lacklustre this week, with dealers offering discounts for the metal ahead of a traditionally busy festival week for the first time in at least three years, as high prices kept consumers away.

Prices in India, the second biggest gold consumer after China, held near 33,000 Indian rupees per 10 grams, the highest since September 2013, ahead of the Dhanteras and Diwali festivals next week, when buying gold is considered auspicious.

This Dhanteras, jewellers and bullion traders witnessed a drop in demand. Retail buyers are not interested in buying at this level. Furthermore, The Indian currency has lost more than 12 percent of its value against the U.S. dollar so far in 2018, making purchases of commodities denominated in the greenback more expensive.

Post Diwali, jewellers still have hope of a rise in the demand during the wedding season.
Like global investors and markets players, jewellers in India too are following this approach- to wait and to watch.