Gold prices likely to drop after US Fed rate hike talk
The bullion market may remain subdued as investors may exit gold ETFs after US Federal Reserve hikes its interest rates further.
Mumbai: With the US Federal Reserve hinting at a couple of more hikes in interest rates in 2017, bullion experts are expecting gold price to further weaken in coming months. A further rate hike by the US Federal Reserve would trigger a rally in US dollar, which is negative for gold.
“In the last two months, the SPDR Gold Exchange Traded Fund (ETF) has witnessed a net outflow of 175 tonnes of gold. This suggests that the interest in gold is waning in the wake of tightening of monetary policy in the US. In dollar terms, we are expecting the gold to trade lower in the range of $1,050 to $1,300 per ounce while in the domestic market, gold is expected to trade in the range of Rs 25,000-Rs 29,000 per 10 grams,” said Mukesh Kothari, director, RSBL.
In the global market, the yellow metal is trading around $1,135 per ounce while it is trading at Rs 27,500 per 10 grams in the domestic market.
According to Mr Kothari, the government is likely to reduce the import duty on gold to four per cent from the current rate of 10 per cent.
“This will further put downward pressure on gold prices in the domestic market. At the moment, there are no positive triggers either in the global markets or in the domestic market for the prices of gold to rally higher,” he added.
Despite the lower prices of gold, Bachhraj Bamalwa, past president of the All India Gems and Jewellery Trade Federation is expecting a lower demand for the yellow metal in 2017 as well.
“The impact of demonetisation is already visible in the entire consumer discretionary sector. The industry has done less business during the October-December quarter traditionally considered to be the peak season for the jewellery industry. The volume of business so far is just 60-70 per cent of what we did during the same period last year. The impact of cash crunch would also be felt in the first quarter of 2017,” he said.
According to him, the gold demand will remain subdued if the the domestic growth fails to pick up momentum in the coming quarters.