The sentiments are so strong for the gold market that people get overly excited about the top as well as the bottom of the market. At times gold seems to be behaving like a common man who is fleeced by the minutest to the most extreme global scenarios.
This week too gold was dancing to the tunes of the US dollar, The US Jobs Data, Fed Interest rate hike, ECB’s actions on Greece, crude oil prices. So it’s basically a vicious circle for gold.
Ups and mostly downs were being strongly witnessed by gold. For the month of January Gold was up 8.4 per cent, its biggest monthly rise in three years, helped by a sharp slowdown in US fourth-quarter economic growth. US gold for April delivery edged up 0.2 per cent to US$1,265.20 an ounce.
But the first week of February was disappointing for gold. Gold steadied on Friday ahead of crucial US employment data, but was set to post its biggest weekly loss in almost two months after steep gains at the start of the year.
The gold market appears to be in a tug of war with uncertainty: in Europe, with Greece boosting safe-haven demand on one side, and a strong U.S. dollar on the other side. The metal dropped 1.5 percent this week the most since December.
Let’s analyze the key influential factors for gold
US Employment Data- The employment data released on Friday was much above the expectation levels and this changed the market’s view on when the U.S. Federal Reserve will announce a rate hike, and has hurt the metals complex since then.
Total nonfarm payroll employment rose by 257,000 in January, and the unemployment rate was little changed at 5.7 percent, from 5.36 percent the U.S. Bureau of Labor Statistics report stated. Job gains occurred in retail trade, construction, health care, financial activities, and manufacturing. The change in total nonfarm payroll employment for November was revised from +353,000 to +423,000, and the change for December was revised from +252,000 to +329,000. With these revisions, employment gains in November and December were 147,000 higher than previously reported.
This further raises the expectations for the Federal Reserve to hike interest rates by mid-year, denting the appeal of non-interest yielding assets such as gold.
Strength in the U.S. economy is backing the case for the Federal Reserve to raise interest rates, curbing gold’s appeal because the metal generally gives investors returns only through price gains.
Greece- Meanwhile, investors remained wary of developments in Greece, after the European Central Bank said it would no longer accept Greek bonds as collateral for lending, shifting the burden on to Greece’s central bank to provide additional liquidity for its lenders and increasing pressure on Athens.
Greece’s government is seeking debt relief on its current €240 billion bailout, which has fuelled fears over a clash with its creditors that could bring about its eventual exit from the euro zone.
This uncertainty over Greece has provided the much needed support to gold prices.
ECB’s action on Greece– The market kept an eye over the ECB’s actions on Greece after the newly elected Greek Prime Minister wanted to end the austerity programme by the Troika. The ECB restricted Greece from tapping the ECB’s direct liquidity lines, forcing the Greek banks to borrow at a higher rate from the Bank of Greece under the Emergency Liquidity Assistance.
Uncertainty about the ECB’s funding for Greece and the country’s exit from the Euro has led to a stronger demand for gold. Despite the weak Euro, which has fallen five percent against the Dollar this year, the gold price has risen 6.64% year-to-date and has climbed as high as ten percent this year. While some profit taking is natural after the big gold price move, the continuous liquidity boost from China and Europe and the volatility in the currencies are likely to support gold prices in the medium-term.
The metal is still up 6.8 percent this year amid concern about austerity measures in Greece and as central banks in Europe and Asia announced more stimuli to bolster economic growth. Investors have added to bullion holdings in exchange – traded funds for the past month, bringing assets to the highest level since October.
Apart from global facilitation., another element that will be crucial for the gold market are the growing problems in Europe as the European Union and Greece have been unable to develop a renegotiation agreement.
Following factors shall be monitored over the weeks to come-
- G20 meeting on 9 February,
- China’s January inflation data on 10 February
- U.K. December manufacturing output on 10 February,
- The Eurozone December industrial production on 12 February
- The U.S. January retail sales on 12 February
- The Eurozone Q4 preliminary GDP on 13 February.
TRADE RANGE FOR GOLD:
|GOLD||$1180- $1270 an ounce||Rs. 26,000- Rs. 28,000 per 10 gm|
|SILVER||$16.15- $18.00 an ounce||Rs. 36,000- Rs. 40,000 per kg|