All That Glitters are Shining at the Bottom

Edited By Barsha B. Baruah

The gold prices in the US slipped in the wake of the Federal Reserve’s new indication and speculations.

The Federal Reserve did it, and did it the hawkish way. No, we are not saying it; the industry experts are saying so! On Wednesday, August 20, 2014, when the US dollar jumped against Euro and Yen, the investors were perhaps not expecting a selling pressure in gold’s prices. In fact, the decline occurred immediately after the Fed Reserve released its report indicating a modest growth in the US economy, and speculating an early rise in interest rates. The gold traded near a two-month low in early dealings on Thursday as well. On a flip side, the declining gold price hints at an improved labor market and eliminates the demand for the metal as a protection of wealth.

On Friday, August 21, 2014, at the time reporting, gold for immediate delivery was traded at $1280.02 an ounce, as opposed to Thursday’s dealings of $1,273.14. However, it ended at 1276.78 before closing. As of now, the current prices are good enough to give gold investors’ a peaceful weekend; but some major financial dailies suggest that the market is still trying to catch up with Wednesday’s FOMC (Federal Reserve’s Open Market Committee) report. While the FOMC report influenced the US Treasury and gold prices, the US stock indexes were definitely not affected by it. The Nasdaq Index set a 14-year high on Wednesday, so was the S&P 500 that sat pretty at a record high the same day.

The graph below displays a neater picture:

comm1-22aug2014

Another school of thought believes that much of gold’s falling prices could be attributed to the fundamentals. The last week’s data from the World Gold Council indicated that demand for physical gold continues to remain weak in Q2, 2014, especially in primary gold markets such as India and China. The Fed officials are still debating over when to raise the interest rates — a move that could eliminate the obsession for private ownership of gold.

Conclusion: The focus right now is on the much-awaited speech from Fed’s Chairperson Janet Yellen, at Jackson Hole. Though the stocks are expected to continue their winning stride, the highlight of this week has been to get an idea of Fed’s starting date to raise the interest rates. This will be her first speech as Fed chair, begins at 10 a.m. EDT Friday. Happy listening!

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