Gold showed wave like movements this week. Beginning with a positive tick on Monday, then lowering by the middle of the week and again picking up pace on Friday, it seemed like a see saw trend for gold.
Though gold was up on Monday, it continued to remain under pressure from a Federal Reserve policy meeting that was due on 15-16 December weeks, when the US central bank was expected to raise interest rates for the first time in nearly a decade. In its last policy meeting of the year on December 15-16, the Fed was seen raising rates by a quarter of a percentage point.
Gold has already slid 9 percent for the year, its third straight annual decline, in anticipation of a rate hike.
Gold dipped on Thursday morning in the US, with the start of US monetary policy normalization spurring the dollar.
The Federal Open Market Committee (FOMC) decided to start to normalize US monetary policy after seven years of near-zero interest rates, lifting the federal funds rate to 0.5 percent from 0.25 percent. The policy board still sees the long-run rate at 3.5 percent and finishing next year around 1.375 percent.
After markets halted to examine the impact of the rise, the dollar gained against other major currencies and pressured the precious metals lower – the greenback was last 0.7 percent stronger at 1.0844 against the euro.
Post the FOMC meet, gold was expected to come under increased downside pressure from a stronger dollar.
Investors will now focus on the pace of future rate rises, which will be affected by the general strength of the economy and underlying inflation data.
In US data, weekly unemployment claims for were in line with forecasts at 271,000 and were below the psychologically important 300,000 mark.
The Philly Fed manufacturing index for December at -5.9 missed the predicted 2.1 while the current account for September at -$124 billion was largely as expected.
While the Fed does not expect to reach its inflation target of two percent until 2018, Chairwoman Janet Yellen said in the following press conference that current transitory factors stem from low oil prices.
After Thursdays decline, the markers expected gold to drop further. But Gold prices jumped in morning trades Friday after the dollar weakened against other currencies and as investors bought back oversold position after prices slumped to over four-month low on Thursday.
Gold prices finally found some support in the weakening dollar index following profit booking and buying at lower level. Prices of the bullion were down as dollar index weakened against other currencies, boosting investors’ appetite for dollar-denominated commodities.
Gold was in positive territory on Friday morning in London after the dollar eased slightly amid growing expectations that the path to higher interest rates in the US will be a slow one.
The spot gold price was last at $1,054.9/1,055.2 per ounce, up $2.20 on Thursday’s close. Trade has ranged from $1,051.2 to $1,058.1 so far. In the previous session, the yellow metal dipped below $1,050.
Gold (and silver) rose on Friday, taking back about half of Thursday’s loss of approximately 2.00%.
Reasons behind the price rise were-
- The anxiety in equities restricting from the despair in crude prices
- A changed deliberation of a longer-term view that gold is “due” to rise because of weakening dollar strength
- Hurry to grasp snips.
In the coming days and weeks, the downside in precious metal prices may be limited due to low activity as a result of Christmas and New Year, volatility is expected to remain calm. But the year could start on a negative note for gold. Chairwoman Janet Yellen said future rate increases will be gradual and the policy could be reversed if the US economy begins to slow
In the interim, volumes are expected to shrink while market participants head to the sidelines during the holiday period, possibly resulting in choppy conditions.