The last couple of years have been anything but normal for gold. Back in early 2013, the Fed started augmenting its young QE3 debt-monetization campaign with aggressive jawboning. It kept implying to stock traders that it was ready to quickly ramp up money printing if the stock markets sold off materially. This short-circuited normal healthy sentiment re balancing sell offs, as traders feared nothing.
Thus the stock markets levitated, powered higher without normal material sell offs. Since gold is an alternative investment that moves contrary to stock markets, this slowly strangled gold investment demand. Investors gradually abandoned it, leaving this metal for dead.
FED’s exiting the zero interest rates is a big point of debate for US economy. But frankly I do not think this is the only challenge we are talking about. To me, the unwinding of trillions of dollars used to purchase Bonds by the FED is more of a concern. Less than a year from now, FED will have take one of its biggest decisions of reinvesting $200 billion (approx) which are the proceeds from Treasury debt that is supposed to get matured in 2016.
I did get some more idea by going through some news on the same:
1. If FED does not invest, it could lead to an increase in supply of security products available to the investors and put an upward pressure on yields.
2. If they plan to let it expire, it will shrink FED’s balance sheet drastically leading to monetary tightening from increases in the benchmark interest rate officials envision for this year. That could mark a reversal of easing that FED achieved when it started its bond purchases programme after the recession.
For this week, Gold advanced for the first time in four days after holdings in exchange-traded products backed by bullion posted the largest increase in more than six weeks. On Thursday, gold-backed ETP holdings rose by 3.9 metric tons, the most since Feb. 23, to 1,620.1 tons, according to data compiled by Bloomberg. Holdings in the SPDR Gold Trust, the top bullion ETP, had the biggest jump in two months. This jump in holdings shows that there is some movement out of the conventional assets into gold.
CFTC data released on Friday showed that speculators sharply increased their bullish bets last week. The net weekly gain of 20,738 contracts was quite balanced from 10,312 of new longs and a 10,426 reduction of shorts. This increase brings the net position to +100,000 for the first time since March 3rd. This was also the third straight week of gains there.
But a good sign from Eurozone did come on Tuesday, where its private sector continued to improve in March with Markit’s final composite PMI rising to 54.0 in March from 53.3 in February, an 11 month high.
Following suit, gold prices stabilized above $1200 on Friday although the markets watched the surging dollar. The dollar index remains strong at around its highest in three weeks – it was last at around 99.30, having earlier touched 99.69. The US currency has gained ground following the release of the mildly hawkish minutes from the March meeting of the US Federal Open Market Committee (FOMC) earlier this week.
The spot gold price was last at $1,207/1,208 per ounce, up $12.80 on Thursday’s close. Trade has ranged from $1,193 to $1,210.8. This does seem to be a pyschological boost for the boost.
To bottom it up, we saw gold getting support on Monday; post the weak jobs report that were released last Friday. Moreover, the dovish comment from New York Fed President William Dudley, gave gold the further push in prices. Furthermore, a weaker U.S. dollar provided underlying support for bullion. There may be more scope for bullion to rally.
Precious metals are highly sensitive and react instantly to the following
- Changes in monetary policy expectations,
- Fed’s decisions
- Dollar prices
- Geo political crisis.
But currently what matter the most for the market watcher is – when the Federal Reserve will make its first move on rate and potential political fallout of Greece leaving the Eurozone.
If gold breaks $1225 an ounce then it can be considered a good opportunity to buy in the market.
|GOLD||$1188- $1224 an ounce||Rs.26,500 – Rs.28,000 per 10 gm|
|SILVER||$16.15- $17.30 an ounce||Rs.36,000 – Rs.38,000 per kg|