Weekly Gold Wrap Up: Gold Stumbles Towards $1300 Before Recovering
London (Nov 30) Gold futures once again nosedived as the fears of the curb of the Fed's bond buying program, raised after the Fed meeting minutes revealed that the central bank could begin to slow its bond-purchasing program as soon as December. The gold and silver prices are down nearly 24% and 33% this year respectively on the on concerns the Fed would begin cutting back its easy-money policy by trimming its $85-billion monthly bond purchases.
According to the minutes of the Fed's October meeting, policymakers said they could start scaling back the USD85 billion-a-month asset purchase program in the “coming months” if the economy continues to improve as expected.In the month of November the COMEX February gold futures have tumbled by nearly 5% at $ 1250.4 an ounce with the sentiments hurt by the withdrawal of the QE program and also on rally in global stock markets and sharp drop in the Japanese Yen.The Japanese Yen tumbled to 6 month low thus inducing the investors to park their money in risky assets classes like equities thereby taking gold down. The dollar has climbed nearly 4% against the Japanese currency this month.
The deflationary atmosphere in the advanced economies is also shaking the roots of the gold, as deflation is always followed by the rate cuts. Gold had rallied strongly in the wake of the 2007-2008 financial crisis, peaking in September 2011 at just under $2,000 an ounce. Gold's gains were attributed in part to aggressive monetary easing by the Fed and other central banks. Central banks now find themselves more worried, on balance, about disinflationary pressures and the potential threat of deflation.Of late the ECB and the Bank of Australia have trimmed their rates. The ECB cut its key benchmark interest rate by a quarter of a percentage point to 0.25%. Australia's central bank has cut interest rates eight times since late 2011. The latest reduction in August took the cash-rate target to a record low 2.5%.
The India gold has been protected from sharp drop unlike the international gold futures, thanks to the long-lasting weakness in the Indian currency and the tight supplies in the markets. The Indian Rupee tumbled to an all most two month low of 63.65 per US dollar on 13th November. The MCX February dated futures contract is about to end the month on flat note at Rs 29300 per 10 grams. In the near term the metal should trade in the range of Rs 28500- 29500 levels. The Rs 30000 mark should continue to act as resistance.
