Firstly, wishing everyone a very Happy Diwali and a Prosperous year ahead.
And indeed it was a Happy Diwali for domestic jewellers, as the slump in gold demand had finally gained momentum this October.
Demand for gold jumped in India this week on account of Dhanteras and Diwali, but high prices took some sheen off the yellow metal’s lure during the key festival period this year.
Demand in the world’s second largest gold consumer generally rises during the final quarter as the country welcome the festive and wedding seasons, where buying bullion is considered auspicious and propitious.
Though a lull was witnessed in gold demand during Dussehra, it significantly improved during Dhanteras and Diwali.
Gold prices spurted by Rs 290 to 3-week high of Rs 31,000 per 10 grams on the eve of Diwali at the bullion market on increased buying by local jewellers to meet festive demand.
Demand was expected to be even better, if global prices had shown similar movements. However in Asia and other international markets, gold prices were seen falling down.
CHINA- Elsewhere in Asia, there was a slight uptick in demand for physical gold, with benchmark spot gold rates headed for a weekly decline after touching a one-week low of $1,276.22 an ounce on Thursday, pressured by a firmer dollar.
However, investors remained cautious, awaiting direction on economic policy and market reforms during the 19th Communist Party Congress in China which kicked off on Wednesday and were also focused on the upcoming elections in Japan.
In top consumer China, premiums charged ranged between $8 and $12 per ounce over the benchmark this week, compared with $9-$14 a week earlier
JAPAN– Gold hit its lowest in more than two weeks on Monday as expectations that Japan’s ultra-loose monetary policy would stay in place after Shinzo Abe’s election victory at the weekend lifted the dollar to a three-month high versus the yen.
Japanese Prime Minister Abe’s win also fed into positive sentiment in equity markets that were buoyed last week by fresh optimism about tax cuts in the United States, curbing interest in gold as an alternative asset.
U.S. DOLLAR & U.S. ECONOMY– Gold prices touched the lowest in more than one week on Thursday, as the dollar stood firm on rising U.S. Treasury yields, with investors focusing on who would replace Janet Yellen as the next chair of the Federal Reserve.
Financial markets are now awaiting guidance on who will succeed Federal Reserve chair Janet Yellen, whose term expires in February.
U.S. President Donald Trump is considering nominating Fed Governor Jerome Powell and Stanford University economist John Taylor for the central bank’s top two jobs. Powell is considered less hawkish than Taylor, who is seen advocating higher interest rates.
Moreover, the economy expanded at a modest to moderate pace in September through early October, despite the impact of hurricanes on some regions, the Fed said its latest snapshot of the U.S. economy thus hinting markets that the US economy is doing well which will further create a downward pressure on gold.
The dollar had already posted its biggest one-day gain in a month on Friday after the U.S. Senate approved a budget blueprint for the 2018 financial year, allowing Republicans to pursue a tax-cut package without Democratic support.
The dollar hit its highest in about two weeks versus the yen, supported by this week’s rise in U.S. bond yields, with U.S. President Donald Trump set to make a decision in the “coming days” on Yellen, who is also one of the five candidates being considered for the job.
Higher interest rates tend to boost the dollar and push bond yields up, putting pressure on gold by increasing the opportunity cost of holding non-yielding bullion.
Tensions on the Korean peninsula, however, continue to weigh upon gold and the metal could drift down towards the $1,250 level by early December weighed down by the prospect of a further increase to U.S. interest rates in December.