Friday, 20 March 2015

Gold Buoyed On Follow Up Buying, MCX Futures Test Rs 26K

Gold stayed elevated today on follow up buying. The metal approached its two week highstoday. Demand worries have ensured that the metal does not extend a smart rally post theUS FOMC meet earlier this week. On Wednesday, the COMEX Gold futures jumped along withequities as the FOMC statement removed the word “patient” regarding when todecide to raise interest rates. However, the statement also pointed out some weaker USeconomic data recently, indicating that the Fed may not be able to raise interest rates assoon as it would have liked. The COMEX gold futures had dropped under $1150 per ounce tomark another four month low earlier.
A strong wave of buying lifted the metal from these levels though the counterconsistently failed to hold on above $1170 per ounce mark. The COMEX Gold futures arequoting at $1175 per ounce, up $5 per ounce on the day. A mixed outing in the Asian stocksand weakness in crude oil prices are keeping a tab on the yellow metal. MCX Gold futuresare trading at Rs 25977 per 10 grams on the day, up Rs 1 per 10 grams on the day. Thecounter hit a high above the critical Rs 26k per 10 grams mark.
The global economic recovery remains fragile because of significant risks, according toChristine Lagarde, Managing Director, International Monetary Fund, stated media reports.One such risk emanates from the expected tightening of US monetary policy at a time whenmost other countries are easing monetary conditions. If not well managed, thisasynchronous monetary policy may trigger excessive volatility in global financial markets.Another risk is the strengthening US dollar and its possible impact on emerging marketeconomies. These countries could be vulnerable because many of their banks and companieshave sharply increased their borrowing in dollars over the past five years. A further riskis a prolonged period of low growth and low inflation in Japan and in the Euro Area –although we are beginning to see signs of an improvement in activity and inflationexpectations in the Euro Area.
Gold soared Wednesday after the Federal Open Market Committee indicated a slower paceof rate hikes, following the removal of the word “patient” from its policystatement. Stocks also jumped with the Dow surging 1.3%, to close at 18,076.19, aftertrading down 100 points just before the statement’s release. Productivity in the USeconomy has been disappointingly low, Yellen noted. The bright side is that lowproductivity means more workers are needed to produce the output demanded, she stated. Sheexpects productivity to pick up in the medium term though.
Demand worries continue to haunt gold and speculative buying is taking a backseat. Goldspeculators and large futures traders continued to decrease their gold bullish bets lastweek for a sixth consecutive week and brought the overall bullish level to its lowestpoint since November, according to the latest Commitment of Traders (COT) data released bythe Commodity Futures Trading Commission (CFTC) on Friday. The non-commercial futurescontracts of Comex gold futures, traded by large speculators and hedge funds, totaled anet position of 81,892 contracts in the data reported through March 10th. This was aweekly change of -33,928 contracts from the previous week’s total of 115,820 netcontracts that was registered on March 3rd.

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