- By Mr. Prithviraj Kothari, MD, RSBL (RiddiSiddhi Bullions Ltd.)
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The U.S. shut down was the most discussed topic last week. The world largest economy might be pushed into default in case of a failure to increase the debt limit. Though the partial shutdown did not create much impact on gold prices globally, this shutdown along with the debt ceiling will surely have a major impact on bullion prices worldwide.
As shutdown enters its second week, there prevails lot of uncertainty in the markets.
Gold fell on Thursday, as investors booked profits after the previous session's gains due to uncertainty about a partial U.S. government shutdown and slow demand in key physical markets.
It rose 2.2 percent on Wednesday, posting the biggest daily gain in two weeks, as the dollar fell to an eight-month low and no end appeared in sight to the shutdown.
Gold prices closed lower on Friday, held down by dollar strength to lose more than 2% for the week after having been batted around by the U.S. government shutdown and debt-ceiling worries.
Gold was trading in a tight range during Asian hours on Friday as the Chinese markets were closed for a national holiday through Monday and simultaneously there was not much US data expected or released through the week.
In such an uncertain environment where even a partial shutdown is expected to move gold prices higher and increase its demand as a safe haven asset, we found an exactly opposite trend prevailing in the market. Demand for gold crumpled as there was speculation in the market that the effect of the partial U.S. government shutdown will be short lived.
In the past too, such stand offs have been resolved at the last minute just before a major deadline. the same was expected this time too. But now the scenario seems to be changing,
As many as 800,000 U.S. federal employees are temporarily out of work. Congress also faces a dispute over raising the $16.7 trillion debt ceiling this month.
Further, the market is starting to look ahead toward the Oct. 17 date by which the Treasury has said it will hit its borrowing authority, meaning another potential political fight over the debt ceiling.
While the temporary U.S. government shutdown has not been a positive driver for prices, the risk of a debt ceiling breach holds scope to reignite interest.
Other factors that could influence the market next week include minutes of the last meeting of the Federal Open Market Committee and the return of Chinese buyers after a week-long holiday.
Next week, As India marks the onset of the festive season (to begin with Navratri) and Chinese buyers are back after an extended holiday, demand for gold is expected to increase. Whatever the case, many anticipate the metal will get a lift if the political stalemate and U.S. government shutdown goes into a second week. Meanwhile, a week-long Chinese holiday will end next week, bringing potential buyers of physical metal back into the market. All these factors will extend a supporting hand for gold.
Traders who have been active in the market have been closely watching the US data on the labour and housing markets. Key figures will help in judging the strength of the US economy which in turn could decide when the Federal Reserve would begin cutting back its bullion-friendly stimulus measures
Fed officials have said this week that the lack of data was making it difficult to read the economy and the Fed might have to keep monetary policy for longer to help offset the harm caused by political fighting in Washington. Spot gold eased 0.1 percent to $1,315.44 an ounce by 0307 GMT after sharp swings earlier in the week.
This shutdown has also started affecting economic data releases. US nonfarm payrolls, considered the most importantly monthly data release in financial markets, is unlikely be published as scheduled.
Thus has left the data calendar rather light, with August German PPI coming in at -0.1 per cent, 0.2 percent points below the forecast.
The International Monetary Fund managing director Christine Lagarde among others, has warned that the US and the global economy could be dragged into further difficulty unless the US can resolve both issues (shutdown and debt ceiling) quickly. In the rest of the precious metals, trade has been broadly stable, though most lost some ground.
Platinum and palladium slipped $1. Platinum last $50 in this week, a fall of 3.5 per cent and palladium dropped $32 (4.3per cent). Silver was down five cents at $21.60 per ounce.
The trade range for gold in the international and domestic market in the coming week is expected to be $1301-$1370 an ounce and Rs.28,500- Rs.31,000 per 10 gram respectively.
Now all eyes are glued on the debt ceiling.
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.
- Previous blog -
"Debt Ceiling or Death Ceiling for Gold?"
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