Crude goes higher, Dollar retreats from 11 month high, but Gold slumps to six month low over damp buying

Last Updated: Fri, Jun 22, 2018 22:26 hrs
Gold (AP Photo)

For those of you interested in purchasing the yellow metal, the weekend seems like a perfect time. Dollar retreating from it's 11 month high, a rise in crude prices and weaker demand in domestic markets has lead to Gold prices slipping to a six month low.

A week ago, the Dollar gained strength with the Federal reserve raising lending rates. This lead to volatilities for the yellow metal. On the US spot-markets Gold settled to $1266 on Friday, a six month low. The lowest was $1260.84 per ounce during 19th December 2017.

The US Dollar's rise lead to speculation that investors could shift assets from bullion. But, that analogy may not hold true for Indian markets. In fact, the Dollar's strength against a reserve basket of currencies has often lead to a weaker Rupee, and thereby prospects of a price drop are largely speculative.

This, because Indian consumers have to depend on importing the yellow metal, paid in US Dollars from the reserve funds.

Last week, we had hypothesised that Gold prices could slip owing to the rise in the US Dollar. But we crossed our fingers on whether Indian consumers could witness any relief in prices. It seems the relief has arrived, a little earlier in the week.

On Monday gold prices crashed by 1.32%, quoting Rs 30,000 per ten grams for the 22 Karat variant in New Delhi. This ease was short-lived with prices jumping 0.5% on Wednesday.

The price drop was owing to a dull uptake from jewellers who said that retail buyers were still hesitant to buy Gold at higher prices. Reuters quoted a jeweller as saying that buyers were awaiting for Gold to slip up to $1,250 an ounce. Speculations such as these are expected to continue.

Meanwhile, a major development occurred late on Friday in Vienna. This relates to the OPEC (Organisation of Petroleum Exporting Countries) cartel agreeing to supply an additional million barrels every day. Any dialogue from OPEC has an impact on the global trade. More supplies of crude would result in easing supply related concerns. This number was lesser than what traders estimated but spread cheer amid markets.

The OPEC news caused Brent Crude futures for August to jump to $74.57, a rise of 2.1%.

If you are thinking why talk about Petrol when the conversation is around Gold, you are perhaps right.

Gold and Dollar share an inverse relationship, but the yellow metal and crude considered commodities, exhibit an almost direct relationship. Many investors subscribe to this idea, but they do not consider it a gauge to track Gold prices since it is not a regular commodity per se. It may not subject to the same wear and tear and consumption traits that other commodities go through.

There is a logic however that higher crude prices could buoy Gold prices. If the dollar remains consistent as the last few days of this week, we might see Gold prices remaining either at just where they ended this week, or slightly a few notches above.

Besides crude, your gold investments would also be impacted by fresh geopolitical tensions. The North Korean geopolitical scare was put to rest after Trump and Kim Jong-Un were clicked shaking hands at a Singaporean resort. But the simmering tensions between US and China over talks of tariffs have intensified tensions. Analysts we spoke to said this could be a rhetoric, but statements as tense as tariffs seems to spark investors off.

The domestic demand defines prices, and we hope consumers and retailers find a perfect price situation. Do check the Gold rates available on the Sify app. The app displays the rates for individual cities and towns.

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