APPETITE FOR GOLD RISES!

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When global risk escalates – financially and politically – gold is always considered as an insurance against it. The speculations that the Federal Reserve may raise interest rates has kept the yellow metal  in small trading ranges around $1,300.

In the previous week precious metals were down throughout the week until the payroll data was released on 1st August which showed that the jobs added were less than market expectations. These reports had raised speculation that the Fed could soon raise interest rates which would then increase the opportunity cost of holding gold. This sent gold to a six week low in the last week of July but was later pushed as the month ended over a report that showed that U.S. jobs growth slowed in July. This strengthened the belief that the Fed may keep interest rates lower for longer.

For the month of August, so far, gold has held within a narrow range of $30 over speculation that the U.S. interest rates may rise. This sentiment was offset by the escalating violence in Ukraine and the Middle East. Since mid- June there have been a lot of major influential factors that have been influencing gold prices-

  • Some weeks there were better U.S. data
  • The constant tensions presiding in Ukraine and Middle East.
  • The Euro zone economy

These and many other micro influential factors have been responsible for the pull and push in gold prices.

Let’s have a look on the weekly movements of gold.

MONDAY – with a rise in banking stocks that lifted European shares and a speculation that the Fed may raise interest rates soon, gold edged low as the week began. Spot gold was down 0.2 percent at $1,290.70 an ounce at 1433 GMT, after falling 1.1 percent last week for its first three-week decline since September.

TUESDAY – Gold edged up on Tuesday following disappointing Chinese economic data, but a firmer dollar and stronger European equity markets limited gains. Spot gold rose 0.2 percent to $1,290.63 an ounce during the trading hours.

WEDNESDAY – Wednesday too gold was on the upper side as it rose 1.6 percent over the continuing conflict in Ukraine. These concerns had put global equities under sustained pressure, thus raising demand for a safe haven asset like gold. And in times of such crisis gold acts as an insurance against risk.

Russia has amassed around 20,000 troops on Ukraine’s eastern border and could use the excuse of an humanitarian or peacekeeping mission to send them into Ukraine, NATO said in a statement on Wednesday. NATO issued warning to Russia to step back from Ukraine’s borders.

Iraq’s largest dam was taken over by the militants.

THURSDAY–  Spot gold climbed to $1,314.40 on Thursday – its highest since July 22, and is on track to snap a three-week losing streak. U.S. gold, also up over 1 percent for the week, is headed for its best week in seven.

A build-up of Russian troops on the border with Ukraine and tit-for-tat economic sanctions between the West and Moscow on Wednesday drove investors out of assets seen as higher risk including stocks and into the relative safety of bonds and gold. Moscow banned imports of most food from the West on Thursday in retaliation against sanctions against it over Ukraine, a stronger-than-expected response that isolates Russian consumers from world trade to a degree unseen since Soviet days

Growing fears that Conflict in Ukraine and the middle East could weaken economic growth also pushed bullion prices high.

Fighting resumed in Gaza between Palestinian militants and Israel after a 72-hour ceasefire expired.

FRIDAY – Friday too, gold hit a three and a half week high after U.S. President Barack Obama authorised air strikes in Iraq. A Bloomberg heading stated that Obama authorized air strikes in Iraq sent equity markets lower, while Gold jumped 8 USD to 1318 and WTI Crude Oil gained 1 USD per barrel.

Spot gold hit its highest since July 14 at $1,322.60 an ounce earlier, and was up 0.1 percent at $1,314.90 during trading hours. The metal has gained 1.9 percent this week, its first increase in four weeks and the highest weekly gain in seven.

Gold has gained eight per cent so far this year. Bouts of international tension, worries about the business cycle in Euro zone, soft economic data released in Germany all this and much more has lifted demand for assets like government bonds and precious metals. These factors have been so influential that even a strong dollar couldn’t offset it.

TRADE RANGE

METAL INTERNATIONAL DOMESTIC
GOLD $1290- $1330 an ounce Rs.27,500- Rs.29,500 per 10 gm
SILVER $19.50 – $21.20 an ounce Rs.42,000- Rs.45,500 per kg

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