Amidst continued uncertainty regarding the Fed’s monetary policy, gold has off late, lost direction.
It was moving in the positive territory. But on Friday, but gold erased intra-day gains, closing down on the day and lower on the week. The yellow metal yielded to pressure from a strong rally in the U.S. dollar.
The dollar gained ground, especially versus the Euro, following this week’s European Central Bank meeting that hinted at further monetary easing this year. The dollar also garnered additional strength in the wake of interest rate cuts by the People’s Bank of China (PBOC) on Friday.
Some market analysts feel that the overnight monetary policy action by the Chinese central bank has created some mixed sentiments in the market. Moreover, before China’s announcement, the European Central Bank (ECB) announced that it is leaving the door open for more quantitative easing measures or even pushing the deposit rate deeper into negative territory in December.
Gold was a little changed on Thursday afternoon in London after the ECB decided to leave the rates unchanged.
The spot gold price was last seen trading in the range of $1,162.8 to $1,172.0.
Adding to the sentiments, was data indicators coming in from US:
- US weekly unemployment claims rose by 3,000, to 259,000 in the week ending October 17, 2015. However, they were below the forecast of 265,000 and under the psychologically important 300,000 mark.
- The House Price Index (HPI) for August came lower than expected at 0.3 percent as did CB leading index at -0.2 percent.
- Existing home sales were better than expected at 5.55 million.
Now that we have some crucial data coming in next week, not only from the US but other leading and developing economies as well, some analysts feel the Federal Reserve is losing its dominance in the marketplace.
Gold traders are bracing for a heavy slate of U.S. economic releases next week, along with key central bank meetings from the U.S. Federal Reserve and the Bank of Japan. The focus could be on BoJ that meets next week and there is a growing expectation that it will announce new easing measures, which are expected to remain steady.
Moreover, the central bank is also slated to release its Outlook Report with forecasts for inflation and the GDP.
Meanwhile in the domestic market, we saw a sluggish demand for gold. Following the nine-day Hindu festival of Navratri, India celebrated Dussehra on Thursday where demand for gold usually rises as people consider it auspicious to buy gold on this day.
But, a slow and easing demand for gold further declined the prices even though globally gold prices were rising.
The fourth quarter is typically a strong period for gold purchases in India, the world’s second biggest bullion consumer, due to festivals and weddings.
Demand from rural areas has been hit particularly hard, as farmers suffer from the first back-to-back drought in India in three decades.
Two-thirds of gold demand in India comes from farmers and residents of small villages who see jewellery as way to store wealth. But lower-than-normal monsoon rainfall this year due to El Nino weather pattern has eroded rural incomes.
One of the most awaited meetings of the Fed, due on October 27-28, could turn out to be a non-event for gold traders as markets speculate a delay in interest rate hike. The Fed’s statement will be released on Wednesday and there is no press conference associated with this meeting.
Apart from the Fed policy, traders are also monitoring the U.S. debt-ceiling situation. The U.S. federal government is moving closer to the deadline where it needs to raise the nation’s $18.1 trillion borrowing limit.
The important reports coming in next week are:
- Monday: Home Sales
- Tuesday: Durable goods and consumer confidence
- Thursday: Third quarter GDP and pending homes sales
- Friday: The core PCE index on Friday.
Next week’s main event:
These events may provide clues of economic strength and inflation that could support potential for a Fed rate hike in December.