Gold investment demand returns, but rising dollar is a major hurdle

Crude oil prices slipped nearly 3 percent as the Saudi Arabian energy minister said it will keep the market well supplied. Moreover, the Saudi Arabian OPEC governor said on October 25, the oil market could be over-supplied in the fourth quarter.

During the week gone by, such statements kept the sentiment in oil market bearish.

Next week, the US will release its non-farm payrolls and core PCE price index. It would be interesting to see which direction the yellow metal is pulled. The latest plunge in equity prices and the spike in Treasury bond yields have increased gold’s safe-haven appeal. We expect the trend in the yellow metal to be flattish to positive.

Dollar muscularity is why gold has had trouble rising sharply. The latest rally in the dollar index is undermining gold’s currency component and limiting its recent gains from the increase in global safe-haven demand.

While gold prices may still benefit in the days ahead from the continuing equity market weakness, we need to see a reversal of the dollar’s recent strength before the metal is ready to commence a sustained rally.

To be sustainable, gold rallies should be the result of significant weakness in the dollar, which benefits both precious metals and drastically increases gold’s intermediate-term investment appeal.

For now, gold remains a Buy for short-term-oriented traders only.

The author is Head — Commodity Research & Advisory at Anand Rathi Commodities.

The safety appeal of gold got a much-needed boost as US equity ran through another major bout of selling pressure. The increase in gold ETF demand is essential to guarantee a turnaround in the trend in the price of gold.

Stock prices around the world tumbled on October 23-24 amid mounting concerns about China’s economy and the US interest rate outlook. Hence, industrial metals fell sharply.

MCX nickel fell more than 4 percent, copper and aluminium skidded nearly 2.2 percent each. When the US posted healthy manufacturing PMI, pending home sales and durable goods orders, the greenback soared past 96. This added to pressure on commodities. Lastly, the energy pack, too, was bearish in the week gone by.


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