Gold prices are likely to gain in the domestic market on Thursday, but currency movements will have a definite say in giving it a direction.
While the dollar gained overnight as the euphoria over the deal in the US to avoid high taxes and spending cuts ended, skepticism also reared its head as tough negotiations will now take place for the next two months on the US Budget.
The dollar gained but it also lost against high-yielding currencies. This could mean it could come under pressure here. This is because being the beginning of the year, the rupee could be in demand from foreign investors looking to put their money in Indian stock markets.
In early trade in Singapore on Thursday, gold was up at $1,688 an ounce, while gold futures maturing in February quoted at $1,688.70.
On Wednesday, the rupee gained 44 paise to hit a three-week high of 54.35 against the dollar. Pure gold (99.9% purity) ended firm at Rs 30,870 for 10 gm, while gold for jewellery (99.5% purity) closed at Rs 30,730.
Any gain in the rupee will make imports of commodities such as gold, crude oil and vegetable oils cheaper. However, since gold has gained more in the global market, the rise in the rupee will only temper the rise. India imports these commodities to meets its growing demand.
The move to raise duty on gold could also act as a dampener.
The oils and oilseeds market could come under pressure after continuous gains in the last few sessions. However, currency movements could cap the fall. The complex dropped overnight on Chicago Board of Trade (CBOT) as the dollar gained, making commodities traded in the greenback costlier. Again, fears of rain disrupting supplies could push palm oil higher.
On CBOT, soyabean for delivery January slipped to $14.05 a bushel, while on Wednesday crude palm oil on Bursa Malaysia Derivatives Exchange closed at two-month high of 2,502 ringgit ($824) a tonne.
The rising dollar saw wheat tumble three per cent on CBOT but that could see Indian grain complex gaining as they turn competitive with the gains in the greenback.
Wheat for delivery in March slipped to $7.55 a bushel, while corn (industrial maize) dropped to $6.90 a bushel for March delivery.
Crude oil gained on hopes of demand rising. This, in turn, will lift natural rubber since its alternative synthetic rubber, derived from crude oil products, will gain.
Brent crude traded higher at $112.47, while NYMEX crude was up at $92.80 a barrel.