Yes Indeed…It seems like a miracle. It’s so surprising to see what a difference a few days can make as the gold market sees renewed optimism, ending the week solidly positive on the back of a weaker U.S. dollar and lower U.S. treasury yields.
Gold prices hit two-week highs on Friday and were poised for their biggest weekly jump since mid-January, after the U.S. Federal Reserve’s cautious note on interest rates arrested a dollar rally and sparked broad-based buying of commodities.
Though the week began with a rough patch for gold by the end of the week it was a completely different scenario for gold.
On Tuesday, Gold fell to a four month low of $1,142.92 an ounce. Market players had expected gold prices to drop further amid the dollar’s surge and speculation about when the Federal Reserve will begin raising interest rates.
With positive economic indicators, the US dollar gets stronger. The interest rate hike expectation had further strengthened the dollar which meant that the future for gold is not good.
Following these sentiments the precious metal traded at $1,148.60 Wednesday morning and plummeted 12 percent in the last eight weeks.
Gold prices were seen heading towards a consecutive loss in the past seven sessions as a robust dollar and expectations of higher U.S. interest rates curbed appetite for the metal.
But Wednesday FOMC meet was a game changer for gold. Following the Federal Open Market committee (FOMC) meeting on Wednesday, The Federal Reserve Chair Janet Yellen made it clear (again) those interest rates would not be raised until inflation gains more steam. With current inflation rates negative for the first time since 2009, and with the U.S. dollar index at an 11-year high, we can probably expect near-record-low interest rates for some time longer.
Post this news, gold prices sparked immediately rising nearly 2 percent, from $1,151 to $1,172. That’s the largest one-day move we’ve seen from the yellow metal in at least two months.
At the highest peak of the week, Spot gold was up 1.2 percent at $1,184.55 an ounce by 1:55 p.m. EDT (1755 GMT) after hitting $1,187.80
Wednesday’s FOMC policy meeting caused a stir in the gold market, which is now looking like it may close off the week on a positive note.
The U.S. currency fell as much as 1.8 percent against a basket of major currencies on Friday, after the Fed downgraded its growth and inflation projections earlier in the week, signaling it is in no rush to push borrowing costs to more normal levels.
Apart from the main game changer for the week, we saw following significant activities in the market.
- Post-Fed, the world’s largest gold-backed exchange-traded fund, New York-listed SPDR Gold Shares, saw its first inflows since Feb. 20, also boosting sentiment. Holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose 0.24 percent to 749.77 tonnes on Wednesday – the first inflow since Feb. 20.
- In the physical markets, Chinese buying was steady, with premiums on the Shanghai Gold Exchange staying at a robust $6-$7 an ounce on Friday. Sustained physical buying could further support prices.
- Gold climbed on the heels of a softening U.S. dollar and focus in Europe turning back from its political problems to the [European Central Bank] stimulus rollout.
- Demand for gold from India picker up ahead of the auspicious occasion of Gudi Padwa.
Though there is not much data set to be released next week, analysts are expecting gold to continue to take its cue from the U.S. dollar. Most commodity analysts see room for the yellow metal to move higher as investors take some of their U.S. dollar profits off the table.
A significant number coming in for the week will be the housing date- release for existing and new home sales number.
Next week, financial markets will receive more housing data with the release of existing and new home sales numbers.
Apart from the key US indicators, one more thing that needs consideration is Greece. Investors need to keep a watch on what is happening in Greece as funding talks are expected to resume again. Greece is once again pushing back against austerity measures, but with no new funding deal, there is a chance they would default on their debt and be forced out of the Eurozone.
Any breakdown in funding talks next week is going to be positive for gold, as a safe-haven asset.
Though no major game changers are in queue for gold, the yellow metal will be taking cues from the above mentioned data.
|GOLD||$1163- $1205 an ounce||Rs.25,700- Rs.27,000 per 10gm|
|SILVER||$16.15- $18.00 an ounce||Rs.36,000- Rs. 40,000 per kg|