Gold moves up on weak US job data

Near-term outlook bullish but long-term sentiment uncertain, say observers.

Gold rallied 1.4 per cent at Zaveri Bazaar here, following a global trend on disappointing American jobs data, which fuelled expectations of the US Federal Reserve going on with its bullion- backed bond purchase programme.

Standard gold surged by Rs 410 to close at Rs 29,510 per 10g. Silver  moved up 0.9 per cent or Rs 465 to close the week at Rs 52,535 a kg.

“Bullion was found oversold and the rebound was imminent,” said Jayant Manglik, president (retail distribution) Religare Securities. In London, gold jumped 1.7 per cent to close yesterday at $1,581.15 an oz from $1,554.6 an oz the previous day. Silver rose 1.4 per cent to close at $27.33 an oz yesterday, compared to $26.96 an oz on Thursday.

Thomson Reuters GFMS, the global precious metals consultancy, says gold will hit $1,800 an oz by the end of the current calendar year. This would, it said yesterday, lead to another rise in the annual average price, the 11th such year and an all-time high in nominal terms. The yellow metal came down to trade at $1,553 an oz early on Friday trade in London. It had hit a high of $1,920 an oz last year.

The yellow metal reversed the trend globally on Friday after three days of sharp losses, after the US announced just 88,000 non-farm payroll additions in March, the slowest in nine months. “But, unlike earlier, there is no panic this time. Meanwhile, long-term sentiment looks down in bullion, said Manglik.

Sharp losses in US equities, coupled with heavy gold short covering, boosted sentiment on safe haven investment in bullion, albeit temporarily. The weak jobs data reduced the chance that the Federal Reserve would alter its current $85 billion monthly purchases of mortgage-backed securities and Treasuries buying programme, in a bid to fuel economic growth.

Gold is used as a hedge against inflation. The metal is also bought by central banks of many countries, to intervene in the market as a monetary stimulus. Over recent years, central banks have added tonnes of gold to their holdings. Although the Government of India has appealed to citizens to abstain from fresh buying of physical gold, the Reserve Bank of India added 200 tonnes to its holdings a couple of years earlier.

“Against the earlier expectations of winding up of the US quantitative easing programme, the decline in non-farm payroll data shows the Federal Reserve would continue the programme to bring the country’s economy on track. Hence, the short-term outlook on gold is bullish,” said Gnanasekar Thiagarajan, director, Commtrendz Research.

Year to date, though, gold is down six per cent, at risk of ending its bull run after rising for a 12th year in 2012. Most investors with bearish bets bought the metal back in short covering, boosting the metal’s prospects for near-month delivery.

The automatic ‘sequester’ spending cuts in the US, triggered from March 1, are likely to have negative effects on the US and other economies, as it could send the world’s largest economy into recession. A recession could lead to deflation and is likely to hurt gold’s inflation hedge appeal.

Central banks across the world had been adopting very loose monetary policy to restore growth in their economies. However recent economic data indicates economies have been stabilising, which would restrict the further expansion of their balance sheets. A tighter monetary policy by central banks is likely to hurt gold’s inflation hedge appeal, said Kunal Soni, an analyst with Emkay Commotrade, a city based broking firm.

 

The original article can be found here.

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