Owing to contrary announcements made by Fed regarding tapering of economic stimulus and later deciding to continue with it impacted the emerging markets currencies adversely. Investors moved away from other currencies and Dollar found new strength. Emerging market currency’s weakness coupled with Fed’s own stance to continue economic stimulus in US is increasing the US Dollar strength and adding pressure on gold prices internationally.
During October, Gold markets around the globe witnessed unusual trades triggering sharp price fluctuations owing to the growing concerns of US debt stalemate. The continued deceleration in economic data of US is making it difficult for Federal Open Market Committee (FOMC) to taper the ongoing stimulus support. Added to this factor, the central banks of emerging countries are having a hard time controlling inflation while combatting a weak currency.
Gold prices were muted at the start of the month and gathered little momentum towards the end of October. In Indian market Gold Futures premiums surged to an all-time high. High premiums of gold futures are an effect of three reasons namely; shortage in physical gold, government intervention and external market factors whereby traders are speculating Rupee to depreciate once again. With Indian government imposing ban on import of gold coins and medallions, this shortage was clearly felt by Indians who normally gift gold coins as a festive ritual during Diwali. However even with current economic conditions it may not be too long before Indians resume their gold consumption. The demand for physical gold in the country is predominantly retail in nature and treated by millions of Indians as a part of their household savings. Regardless of economic conditions India’s affinity towards gold may not ease just yet. With rise in income levels and prevailing global economic conditions, the demand for gold in the emerging markets is only set to increase.
Written By Arthayantra