Fed “Jawbones” Rate Hike, Gold Impacted
$GLD
Aiming at restoring confidence that a rate hike in December is still in the mix, the October FOMC meeting was more Hawkish than expected.
Policymakers showed less concerned over global economic growth and suggested that they would assess the progress of inflation and employment situation in “determining whether it will be appropriate to raise the target range at its next meeting.”
This message is significant as ECB set a Dovish tone a week ago, signaling to discuss QE extension in December. ECB President Draghi unveiled in the meeting on 22 October that “there was a very rich discussion about all monetary instruments that might be used… and the conclusion was: we are ready to act if needed.”
He also noted that further reduction of deposit rate was discussed and suggested that “the degree of monetary policy accommodation will need to be re-examined at our December policy meeting when the new…projections will be available”.
The impacts on commodity prices were evident in Gold. The benchmark COMEX contract for the precious Yellow metal finished the week in Red over the past 2 weeks, losing 3.59% in total.
The following chart shows the correlation between Gold and US Treasury yields.
India, the world’s 2nd-biggest Gold buyer after China, imposed the import restrictions last year to avert a trade deficit crisis that pushed the Rupee to record lows.
“Restrictions placed on import of Gold… stand withdrawn with immediate effect,” India’s central bank said in a statement on Saturday, 29 November.
Support for Spot Gold comes from jewelry demand from India in the lead up to and during the wedding season, which starts again in late September. India did record a 176% increase in Gold imports in August to US$2-B from about US$756-M.
Overall, the impact of wedding season Spot Gold buying has faded in recent times as India is no longer the world’s largest Gold consumer, partly because of the on-going government import restrictions on precious metals. If they are further relaxed, perhaps India will regain its Top spot.
India’s Akshaya Tritiya festival considered by India’s more than 900-M Hindus as an auspicious day to buyGold and Silver, fell on 21 April this year. Bullion is bought in India during festivals and marriages as part of the bridal trousseau or gifted in the form of jewelry by relatives.
Have a terrific week.
HeffX-LTN
Paul Ebeling
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