By Mr. Prithviraj Kothari, MD, RSBL
The much awaited suspense over the
Fed’s September interest rate hike was finally put to an end. It did create
much volatility in the market and bought in some good news for gold.
Gold prices finished the week on a
three day rally as the Federal Reserve’s sudden concern over emerging market
growth boosted safe-haven demand.
The volatility was like a storm for
gold and it tried to be holding on to the gains.
Thursday was a crucial day for gold
as all eyes were focused on the FOMC meet that was due to release its monetary
policy.
Fed Chairwoman, Yellen, added that there was an argument to be made for raising rates in
September; however, because of the global weakness and fragile financial
market, the committee decided to err on the side of caution and leave rates unchanged.
We saw the global economic growth
led to volatility shocks in the global equities market. This once again raised
concerns over the world economic development. Hence the FOMC dropped to normalize
US monetary policy after announcing concerns on overseas growth.
The Fed decided to maintain
near-zero interest rate levels, citing recent equity volatility exacerbated by
a global growth slowdown.
The central bank’s ultra-loose monetary policy, coupled with dovish comments
from Fed Chair Janet Yellen on Thursday, helped gold end a three day losing streak
as it finished Friday in positive territory.
The spot gold price was last at
$1,136/1,136.40 per ounce, its highest in around two weeks and up $3.80 on
Thursday’s close.
Though in her proceedings press
conference, Fed chairwoman did not rule out an October hike but the market is
keener about a hike in December. This would force the FOMC to raise
rates sharply to combat said inflation and prevent the organization from
increasing the federal funds rate at a gradual pace.
Since the Fed removed all calendar
references in its forward guidance in April, the bank is now entirely
data-dependent.
Recent global economic and financial
developments may restrain economic activity somewhat and are likely to put
further downward pressure on inflation in the near term.
Inflation remains a persistent issue
– the FOMC said that declines in energy prices and non-energy imports are
the underlying causes preventing inflation from hitting the Fed’s target of two
percent.
As of now a weak US dollar would prove
to be positive for gold in the near future and if the equities markets lower
then gold could rally further.
But the current statement released
by the Fed that it intends to raise rates by year-end has made the market
players believe that this price rise on gold will be short lived as they
expected the dollar to strengthen as early as October.
The Fed’s next opportunity to raise
rates will fall in October or December.
Looking ahead, the Fed’s stance on interest rates and heightened concerns of
the global economy hurting the U.S. economic recovery has created some strong
positive sentiment in the gold market, at least in the short term.
As we continue to see the after effects of the FOMC meet on gold, prices of
the yellow metal are expected to rise in the short term.
As there is not much important data slated to release next week, gold prices
are expected to range around 1150$ an ounce but will continue to struggle as soon
the rate hike news creeps into the market.
Most analysts are centering on the global market for gold to rally. The fact that the central bank is concerned about the impact the global
economy is having on equity markets, some analyst note that further weakness in
U.S. stock markets could benefit gold.
Some even expect the U.S. dollar to remain at elevated levels as markets
continue to price in a rate hike later this year, which will limit gold’s
potential.
Although U.S. economic data will be limited next week some of reports that
could create some volatility in the marketplace include manufacturing data,
including durable goods numbers for August, home sales data for August and the
final second-quarter U.S. gross domestic product report.
A relatively light economic calendar next week means the gold market will
continue to digest the Federal Reserve’s decision to leave rates unchanged.
The
primary purpose of this article by Mr. Prithviraj Kothari is to educate
the masses of the current happenings in the Bullion world.
- Previous blog -
"Uncertainties For Gold:RSBL"
http://riddisiddhibullionsltd.blogspot.in/2015/09/uncertainties-for-gold-rsbl.html
No comments:
Post a Comment