Gold to rebound after an initial decline

Gold prices are set to rebound, after an initial fall next week, due to selling pressure. This follows uncertainty over the announcement of tapering the US Federal Reserve’s bond-buying programme on good economic data last week.
Gold and silver declined 1.95 per cent and 2.43 per cent in dollar terms to close at $1,229.05 an oz and $19.51 an oz, respectively, on Friday. Subsequently, Gold and silver fell 1.63 per cent and 3.29 per cent, respectively, in India, following a steady recovery in the rupee against the dollar. The rupee appreciated 1.65 per cent against the dollar through the week, closing at 61.42/dollar on Friday.
“The recovery in the US economy announced by the US Fed, in fact, is favourable for equity markets and negative for commodities. But bullion appreciated a bit, following the uncertainty over the final decision on the tapering plan, expected to be announced in the Fed meeting on December 18-19,” said Gnanasekar Thiagarajan, dir-ector, Commtrendz Research.
On Friday, the US government had announced a decline in that country’s unemployment rate — from 7.3 per cent to seven per cent in November, and an increase in total non-farm payroll employment of 203,000. Employment increased in the transportation and warehousing, health care, and manufacturing sectors, too. This raised investor confidence towards equity markets. Growth in the US economy is a negative factor for gold and other metals in this segment.
At about $1,225 an oz, gold is being quoted at around the cost of production. From here, any downward move will force miners to cut production, leading to a shortage of the bullion in the physical market. “Hence, a downward move from this level in gold and silver looks limited. But a recovery will be seen only after continuation in the initial pullback,” said Thiagarajan.
In the last few months, commodity prices have seen a steady decline, indicating the segment witnessed sharp outflow of funds. The diversion of funds has helped global equities markets hit their respective highs.
The US tapering programme, if any, would affect the equities market more than the commodities sector, as the latter has already factored in the impact, with gold and silver falling about 20 per cent since such talks emerged about three months ago. “Gold and silver prices have declined from $1,500 an oz and $28 an oz levels about three months ago to $1,225 an oz and $19.5 an oz levels, respectively. There is hardly any room for further decline,” said an analyst. During the past week, gold and silver prices ended lower on the bullion market due to stockists selling against falling demand, amid a bearish global trend.
Source:Bullion Bulletin

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