US Fed action could take the shine off gold prices, demand – Economic Times

KOLKATA: Yellow metal prices will fall on Fed rate hike, but demand may come from only urban India, say analysts

Gold trade is eagerly awaiting the US central bank’s rate action on Thursday as it will have a major impact on the metal’s price and, therefore, demand. On Thursday, India celebrates Ganesh Chaturthi, which marks the beginning of the main festival season -a key buying period for gold and other precious metals.

Bullion dealers said if the price falls Rs 25,300 per 10 gm from to Rs 25,900 now following the Federal Reserve’s announcement, then demand may emerge mostly in urban India for meeting need-based requirements.

Bullion dealers and jewellers don’t see any immediate pickup in demand for gold as an investment. Also, a fading monsoon continues to remain an irritant for the upcountry purchase of gold in the festive season, traders said. Rains in the next fortnight are crucial for gold offtake in rural India that accounts for 60% of the country’s annual gold consumption of 900-950 tonnes.

“The US Fed Reserve has been talking about a rate hike for quite some time now. Let us see what steps Fed takes (on Thursday). If Fed hikes rate, then gold prices will definitely fall,” Saurabh Gadgil, vice president of the India Bullion & Jewellers Association, told ET. “Even if prices Rs 25,300-25,500 per 10 gm, we fall to will not see significant demand in rural India unless it rains heavily in the next fortnight,” he added.

According to Gadgil, Ganesh Chaturthi spending has been much less this year vis-a-vis last year across Maharashtra. “This is an indication of things that are in the offing. However, the trade is keeping its fingers crossed,” he said. The mood at Mumbai’s Zaveri Bazaar remained somber on Wednesday.

Ketan Shroff, director of Penta Gold, said if the Fed does not hike rates, it may at least offer clarity on possible rate hikes in the coming months. “That is extremely necessary. If it hikes rate then prices of gold will dip to $1,080 per ounce,” Shroff said.

In international markets, gold edged higher on Wednesday but struggled to break away from the previous week’s one-month low. Spot gold was trading at $1,107.46 an ounce on Wednesday.

A section of the bullion dealers said the market has already discounted a Fed rate hike and the impact on prices is already visible. “It may come down to Rs 25,500 per 10 gm if Fed hikes rate. But if it does not, then prices will definitely go up to 27,000 per 10 gm,” said Mukesh Kothari, director of Riddhi Siddhi Bullions. “But the demand in market is muted. Resellers are also not there.”

In southern India, the biggest consumer of gold, demand continues to remain normal. But, Rajesh Mehta, chairman of Rajesh Exports, said: “There will not be any significant demand this year even if the price falls.”