Last year was catastrophic for gold as it performed terribly and ended the year at around $1200, almost 28 per cent down. However, in 2014 we saw a decent act from gold as it reached $1380 in March before falling back to $1240 and then, moving up to $1340. Since then gold has been hovering around $1295, approximately 8 percent up. This highlights a good progress for gold but if we compare it to its life time high of $1900 (In September 2011), it’s still 32 per cent down from its peak.
Currently, gold looks weak.
- The ongoing political tensions in Ukraine, Iraq, Israel and Syria have been weighed down
- No major economic reforms announced by the Government of India for Bullion industry
- Chinese demand for gold has slowed down
- sales out of the gold ETFs seem to have reversed to become net purchases (just) so far this year,
- The Fed has expressed a comfort in the economic growth and a positive recovery.
The market had been awaiting the end of the U.S. Federal Reserve’s two-day policy meeting on Wednesday to see if the central bank will raise interest rates faster than expected.These sentiments created nervousness in the market and gold fell on Tuesday. On Wednesday too, gold fell after the Federal Reserve announced a sixth $10 billion cut to its bond-purchases program amid signs that the U.S. economic recovery is gaining traction.
The monthly bond buying programme has been tapered to $25 billion, which if followed will put an end to the purchase program in October.
The Federal Reserve on Wednesday reaffirmed it was in no rush to raise interest rates, even as it upgraded its assessment of the U.S. economy and expressed some comfort that inflation was moving up toward its target. After a two-day meeting, Fed policymakers took note of both faster economic growth and a decline in the unemployment rate, but expressed concern about remaining slack in the labour market
Gross domestic product in the second quarter rose at a 4 percent annualized rate, compared with a revised 2.1 percent drop in the first quarter.
Though, amidst the Middle East and Ukraine tensions, gold has climbed up, but the positive growth reports released on Wednesday, subdued this rise in prices. Now any further disturbing news coming in would push gold prices high as once again the market would run behind this safe haven asset.
The dollar weakened versus major rivals in the wake of the data. Commodities priced in dollars are sensitive to movements in the currency. A stronger dollar can weigh on gold by making it more expensive to users of other currencies, while a weaker dollar can lift the commodity.
Till Thursday gold was down, but on Friday, gold prices spiked, recovering almost half of the weeks 1.8% loss and was seen trading at $1295 an ounce post the US nonfarm payrolls jobs data release for July, was weaker than expected. This data dampened talks of an early interest rate rise by the Fed and this increased gold’s appeal.
The Labor Department said nonfarm payrolls increased 209,000 last month, below economists’ expectation of a 233,000 job gain. Unemployment rate also rose to 6.2 percent from 6.1 percent as more people entered the labour market.
Portugal will spend 4.9 Billion Euros ($6.58 Billion) to rescue its largest listed bank, Banco Espirito Santo, testing the Euro’s resilience to another banking crisis.
There isn’t much US data this week except the US Non-Manufacturing ISM and the ECB rate decision that could keep the market alive.
Moreover there is a positive outlook for the month as demand from Asia particularly India will pick up as India witnesses the onset of its festive season beginning with Rakshabandhan.
The month of August will be an interesting one as it will give us an indication of which way this market is going. Should it fall significantly then we could be in for a re-test of the June 2013 lows of $1180/oz.
The presence of tapering and the expectation of interest rate increases cast a dark shadow over the precious metals making it difficult to predict just where the momentum for higher prices will come from.
|GOLD||$1275- $1314 an ounce||Rs.27,500- Rs.28,500 per 10 gm|
|SILVER||$20.15- $21.00 an ounce||Rs.42,000- Rs.45,500 per kg|