 "Metals melt on strengthening US economy")
Despite reports of production cuts by major global producers like Glencore and Alcoa, metals' prices slumped due to indications of strengthening United States economy, which heightened possibility of a rise in the interest rate by the US Federal Reserve.
Following the second consecutive positive monthly data by the US Fed, metals (both base and precious) declined. While base metals fell by a margin, precious metals nosedived in August. After hitting the low of $1,087.80 an oz, a decline of $17.2 or 1.55 per cent from previous close, gold for delivery in December on the Comex division of the New York Mercantile Exchange recovered a bit on profit booking. In the physical markets too, gold price fell to $1,085.5 an oz, its lowest since August 7, thus threatening to test thereby the five-year low of $1,077.5 an oz.
Standard gold in the popular Zaveri Bazaar here touched Rs 25,800 per 10 grams late Thursday evening but on the Multi Commodity Exchange, the bullion hit the August low of Rs 25,500 per 10 grams thus turning gold into a discount of $6-7 per 10 grams locally.
Base metals also declined by upto 0.5 per cent from previous close on positive data. Analysts, however, forecast possibilities of further decline in metals on sharp jump in the dollar against the global currencies.
"Metals have breached their respective key support levels on dollar hitting multi-month high. With the growing US economy raising expectations of an imminent raise in the interest rate by the Fed, dollar is expected to rise further. Importantly, the impact of production cuts of zinc and lead by Glencore and aluminium by Alcoa waned. So, metals may see further decline once interest rate revision is announced as scheduled in December," said Ajay Kedia, Director, Kedia Stocks and Commodities Pvt Ltd.
After two consecutive disappointing reports, non-farm employment change exceeded market consensus in October, with the US economy adding 271,000 jobs last month, above the forecast of 179,000.
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On Friday, too, the US employment rate improved to 5 per cent, marginally above the Federal Reserves' stated goal of full employment at 4.9 per cent and down from 5.1 per cent last time. Additionally, average hourly earnings month-on-month rose 0.4 per cent, above consensus at 0.2 per cent.
As a consequence, analysts have started forecasting interest rate hike by the US Fed Reserves in December
Interestingly, gold consumers in India are awaiting further price fall with talks of import duty cut by the Ministry of Commerce from the existing 10 per cent to 2 per cent. With the gold monetisation scheme and bonds scheme announced with upto 2.75 per cent interest, the government intends to reduce gold imports significantly.
"But, gold lovers should start accumulating gold at the current price and build their stocks on every low. Falling gold price on the occasion of Diwali is a positive news for consumers and therefore help raise consumption during the ongoing festive season," said Mehul Choksi, Chairman and Managing Director, Gitanjali Group, the producer and retailer of a number of leading jewellery brands in India.
In fact, the US Fed's interest rate hike may weaken the rupee against the dollar also resulting in reduced benefit of fall in gold and silver prices for Indian consumers.