Gold prices were lacking a direction and remained highly volatile in the month of May. The investors remained in a state of dilemma whether to take positive cues from the economic recovery of US or whether to invest at low levels keeping the high debt levels in view. ECB announced a rate cut of 25 bps pushing its interest rate to historic low levels. On the back of this decision, gold prices recorded meager gains in the first week of the May.
The yellow metal experienced selloff pressure in the second week, trimming the gains of the first week. The strong US dollar and buoyant US stock markets were favored by the investors over gold. The demand for gold has been curbed and investors started preferring US dollar as an alternative investment.
Investors started losing confidence in gold a hedge against inflation. The US dollar continued to gain strength against major currencies in the third week of May. The positive economic data helped US dollar gain its supremacy over the yellow metal. Investor continued fleeing from bullion markets to US dollar.
With the announcement of Fed’s plans to roll back the stimulus package at a sooner date than expected, bullion markets posted moderate gains in the fourth week. The equity markets were hit by the news and posted negative returns on a week on week basis. The bullion markets were favored over the anticipation on the possible impacts of stimulus roll back measures.
The bullion investors remained watchful over the last week of May. Though they were taking positive cues from the expectations that Fed will continue its bond buying schemes for longer time, investors were vary about the losses they had over the last few months.
With the threat of inflation in US subsiding, we expect a negative outlook for gold in the coming month. The US markets remain buoyant. On the Indian front, expect a huge hike in import duty on gold. RBI and Finance Ministry of India have implemented several measures to tame the gold imports. The falling gold prices resulted in increased gold imports. The increased gold imports remain a major governing factor in widening the current account deficit of India. In the month of April, the imports of gold and silver increased by 138 percent in India.
Though the gold prices in international markets are expected to continue their slide, the falling rupee and higher import duty are expected to raise the gold prices in Indian Domestic Markets.