Gold hits four-year low ahead of US Fed meeting

KARACHI: Gold prices plunged to a four-year low of Rs46,350/11.66 gram in Pakistan on Wednesday in line with the world market, which fell ahead of a scheduled meeting of US Federal Reserves on key interest rate, dealers said.
“Fed is expected to hint hiking interest rate in near future ...this possible scenario is negative for gold,” said Adnan Agar, head of trading desk at Arif Habib Commodities. “The Fed might give timeframe for increasing the rate sometime in second half (of 2015) and most likely during September-December 2015 on the back of strong recovery in its economy.”
At present, the rate is hovering around zero-0.25 percent in across the United States.
US policymakers started their two-day meeting and many analysts expected them to remove a patient reference to rate rises from their policy statement. That would put them a step closer to their first hike since 2006.
Amjad Khan, chief operating officer at Pakistan Mercantile Exchange (PMEX) said the dollar is expected to strengthen further in the coming months on the back of Fed’s previous hints about hiking interest rate by mid of the ongoing year.
“The tradition inverse-proportional relationship between the dollar and the gold is expected to remain in place...the strengthening dollar would weaken the gold,” Khan said. “(Janet) Yellen may give refresh cues about increasing the rate today...if she does so, the gold would defiantly go down further, otherwise it may rebound.”
Haroon Rasheed Chand, president of All Sindh Saraf and Jewellers Association said the bullion dropped by $3/ounce to $1,151/at the opening at London market. Accordingly, the price of gold fell by Rs50/tola to Rs46,350/tola.
Chand said a boom at equity markets, and appreciations in dollar against major currencies have stopped gold to rebound. There was also speculation that China had also generated renewed buying in the bullion at its return to work from annual holidays, however, it did not happen.
He said the continuous decline in the prices, however, increase nominal demand at the local market.
Agar at Arif Habib Commodities said technically $1,132/ounce is the next resistance level. “If this level is breached through then world markets may test the second resistance level of $1,120 an ounce sometime this year,” he added.
He said a six-year low oil price at around $50/barrel was also supporting downward trend in the bullion. “Low oil prices is keeping inflation low at across the world ...people usually take position in gold against rising inflation, which is not the case at present,” Agar said.
“Gold might not see recovery at least in the next eight to 10 months. And if it starts rebounding for one reason or the other then it would be crucial for it to breach through the level of $1,185 an ounce on upward side.”
Khan of PMEX said trade activities in gold remained slightly low as compared to historic high volumetric trade at the Exchange. “Traders may take entry into gold when it touches bottom,” he said.