Gold prices took a blow last week as the Fed minutes of the October meeting hinted at a rate hike by the central bank in December. The yellow metal saw prices drop to a five-year low of $1,065/ounce and ended finally at $1,076/ounce on Friday.
A Fed spokesperson said the bank is confident of seeing inflation returning to its target of 2 per cent soon.
The US dollar index, which measures the strength of the greenback against six other major currencies, rallied closer to the 100 mark. It hit a high of 99.85 on Wednesday and closed the week at 99.565. The CPI data that was released on Tuesday by the Labour Bureau showed that inflation was up 0.2 per cent year-on-year in October after a negative reading for two consecutive months. The rebound in CPI was due to higher gasoline prices.
The drop in gold prices, though it makes consumers happy, should worry gold investors. WGC data shows that in September, investors added more gold to their kitty. Demand for gold coins/bars in the July-September period was up 33 per cent at 295.7 tonnes. Gold exchange traded funds, however, continued to show net outflows (65.9 tonnes versus 41.5 tonnes in the same period last year).
Cues to watch The US dollar may head for the 100-100.33 mark in the coming weeks, with markets betting on a Fed rate hike in December. But that may not result in mayhem in the financial markets. Market players believe that after all this speculation, the first round of rate hikes may already be priced in. The Federal Reserve has been indicating that it may not effect sharp increases for a while after its first rate hike. It may take at least 12-18 months for the short-term rates to reach 1-1.5 per cent, say experts. So, volatility in the markets, if any, next month may only be short-lived. But the key factor to watch for bullion investors would be the dollar. As highlighted several times earlier too in this column, after the first few rate hikes, dollar and gold may change their paths as they have done in the past. For all you know, 2016 may not be as bad a year for gold, as the current year.
This week, there are some key data releases scheduled in the US. It starts with existing home sales on Monday, followed by the second estimate of the third quarter GDP on Tuesday.
The market consensus estimate puts it at 2.1 per cent quarter-on-quarter, up from a previous estimate of 1.5 per cent. On Wednesday is the durable goods order and weekly jobless claims data.
Gold prices in the international market saw a sharp rebound after hitting a low of $1,063.5/ounce on Wednesday. This week, there may be some more short covering that can lift prices to $1,090/ounce levels.
However, only when the $1,100 mark is crossed can there be a reversal in trend. But if this week’s support at $1,063 is broken, it may edge lower to $1,050.
Domestic market contracts Both MCX gold and MCX silver contracts dropped last week, tracking prices in the international market. MCX gold ended at ₹25,243, down 0.5 per cent and MCX Silver ended at ₹33,589, down 0.8 per cent. The rupee weakened marginally against the dollar and closed at 66.195.
This week, MCX Gold may move up if the rupee weakens, else, it will broadly follow bullion prices in London.
On the higher side, the contract can move to ₹26,000 and ₹26,800. On the lower side supports are at ₹25,000 and ₹24,500. MCX Silver may see a range-bound movement. It will tread between ₹33,500 and ₹34,500 levels.