By Mr. Prithviraj Kothari, MD, RSBL
Though gold slipped consecutively for
3 days, past week ended on a positive note and stayed on track for a second
successive weekly gain driven by diminishing expectations of a looming hike in
U.S. interest rates.
The metal was up 0.7 percent during
the week, holding on to nearly half the sharp gains it made
on last Tuesday after a weak U.S. data instigated talks that the Federal Reserve
will hold off raising rates at its September policy meeting.
Spot gold was down 0.25 percent at $1,334.60
an ounce at 1152 GMT on 9th September, while it peaked $1,352.65 an ounce after
rallying 1.8 percent on Tuesday.
Reasons being the same- Fed Hike, US
data, US dollar and ECB. These factors have been repeatedly influencing gold
prices since quite some time. Yes I know that we have discussed these points
time and again, and we all know that they
keep influencing gold prices but thee way and the extent to which they influence
does change every week and hence we once again throw light on this week’s gold’s
behaviour-
ECB- On Thursday, the European Central Bank (ECB)
decided to maintain its current bond-buying programme and kept interest rates
unchanged, surprising investors who had expected another round of quantitative
easing in the wake of the UK’s vote to leave the single market.
The ECB’s unexpected stance led to a broad-based
selloff in the commodities sector, while also fuelling a dollar rally – last
trading at 95.45 on the dollar index, the highest point in a week.
Analysts and traders believe that The ECB’s decision
would also increase the likelihood of the US Federal Reserve implementing a rate
hike before the year end.
Global Data- Meanwhile in a slow data day, US wholesale
inventories for July were unchanged, missing expectations of a 0.1 percent rise.
Overnight, China’s August CPI came in at 1.3
percent, below July’s reading of 1.8 percent and market forecast of 1.7
percent.
The Chinese August PPI fell 0.8 percent, improving
from a drop of 1.7 percent in July and better than consensus of a one-percent
drop. August, however, marked the 54th straight month of decline.
Weak global data pushed gold prices high over the week.
US Dollar- Prices have largely moved in
concert with the dollar – against a basket of currencies it recently hit a
multi-week low and was last trading at 94.56. But investment demand in gold and its
potential upside remain capped
The combative rhetoric – along with employment
claims coming in better-than-expected at 259,000 – led to a minor dollar
revival earlier during US trading hours.
Gold has rebounded strongly but
have seem too stabilised between $1,355 and $1,375.25 and analysts believe to remain more or less in this
trading range. But with the dollar looking weaker, we would not be surprised if
gold prices work higher. The rest of the precious metals would follow suit.
Fed Hike- Richmond Fed President Jeffery Lacker said on
Wednesday the case for a September hike was going to be “strong” and echoed his
colleague Esther George who said that she too saw the US labour market approaching
full employment.
Market participants currently see a 21 percent
change of a US rate hike in September, with majority expecting it to happen in
December, according to the CME FedWatch Tool.
Gold prices will trend higher still in near term,
largely driven by lower Fed tightening expectations. Gold prices are expected to boost further, given
that the Fed is unlikely to move in September and the current probability of a
September move is likely to ease further.
The Federal Reserve will meet on September 20-21
and again on November 1-2 before the country goes to the polls on November 8.
Given the looming presidential election and the forecast-missing jobs report
for August, the US central bank is widely expected to hold off on raising rates
until next year at the earliest despite increasing hawkish rhetoric from FOMC
members.
Federal Reserve Bank of Boston President Eric Rosengren, who
shifted his stand in recent months in favour of monetary
tightening, warned Friday that waiting too long to raise interest rates
risks overheating the economy. Higher rates make bullion less competitive
against interest-bearing assets. The comments come a day after the European
Central Bank played down the prospect of an increase in asset purchases.
In the two-week run-up to the Fed’s next policy meeting,
additional US economic data releases will further inform the market’s view of
rate hike probabilities. At the current time, the greater likelihood is that
there will be no September rate hike. If this continues to be the case, gold
could potentially break out above the noted downtrend line and $1350 resistance
level. In this event, the next major upside targets are at the mentioned $1375
high, followed by the key $1425 resistance objective.
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:
"BULLION MARKET HIGHLIGHTS- DECEMBER 2015- AUGUST 2016: RSBL"
http://riddisiddhibullionsltd.blogspot.in/2016/09/bullion-market-highlights-december-2015.html
"BULLION MARKET HIGHLIGHTS- DECEMBER 2015- AUGUST 2016: RSBL"
http://riddisiddhibullionsltd.blogspot.in/2016/09/bullion-market-highlights-december-2015.html
