As 2014 began, it was all green for gold. Investors thought that gold has once again entered the bull market. But this week gold shunned all its gains in 2014 and fell 0.7 per cent.
On the other hand the dollar reached a four year high this week as there were high expectations in the market that more jobs were added in three months. This further added to the speculation the Fed may raise interest rates next year.
When the dollar gets strong and the U.S. yields are higher than gold is counted as one of the least attractive investments. The feeling that investors had about gold in 2008, they are feeling the same for dollar now as all investors are bullish about the dollars prospects.
Now gold has been abandoned by many as this metal is not paying interest and Gold was also depressed by a rebound in European shares, which had slumped on Thursday on disappointment the European Central Bank wasn’t more aggressive at its meeting. Dollar has strengthened more than a per cent against a basket of other currencies and is on a straight track of gains for the 12th week.
The non-farm report. US non-farm payrolls rose by 248,000 jobs, and the jobless rate fell to 5.9 percent last month, the lowest since July 2008,as stated by the Labour Department. The change in total non-farm payroll employment for July was revised from 212,000 to 243,000, and the change for August was revised from 142,000 to 180,000. With these revisions, employment gains in July and August combined were 69,000 more than previously reported.
Post this report spot gold fell as much as 1.4 percent to its lowest since Dec. 31 at $1,195.38 an ounce and was down 1.3 percent at $1,197. It was for the first time in 2014 that gold fell below $1200 on Friday as the dollar strengthen over the positive US non-farm payroll data. Gold fell even further when the markets agreed that the interest rate hike could happen by mid-2015 or even earlier.
Rising interest rates reduce gold’s allure because the metal generally only offers investors returns through price gains, while a stronger dollar typically cuts demand for a store of value.
Moreover, SPDR Gold Trust, the top gold-backed exchange-traded fund and a good proxy for investor sentiment, said its holdings fell 1.19 tonnes to 767.47 tonnes on Thursday – a new low since December 2008. This declined gold prices further.
Apart from the data reports released during the week, it was weak physical demand that could not provide support to gold prices.
Demand from China was low as the Chinese markets remain closed for a week long holiday. Though gold prices did get some support from the Pro-democracy rallies in Hong Kong but it was not enough to reverse all the losses from a stronger dollar.
Now the markets await for the Chinese and Indian markets come back next week, they may see lower prices as a good buying opportunity, so possibly some support will come from physical demand in Asia and in the U.S. the Fed policymakers will scrutinize the data as they prepare for a policy meeting on Oct. 28-29
|GOLD||$1180- $1207 an ounce||Rs. 26,000- Rs. 27,500 per 10gm|
|SIILVER||$16.40- $17.50 an ounce||Rs. 37,000- Rs. 40,000 per kg|