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Chinese Gold Buying Picks Up After Holiday Indian Premiums Rise
Chinese Gold Buying Picks Up After Holiday Indian Premiums Rise
Evaluation Period:
Weeks Covered:
Overall Forecast Price Direction for Evaluation Period:
Up
Explanation
Down
Explanation
Slower demand growth at a time when supply base is growing (US and
Russia), coupled with a steady return of output from Libya, bring the price
of oil down to a new low. Saudi Arabia and Irans discounting of their oil
prices to Asian markets also bring overall prices down as other OPEC
members are expected to follow suit due to competition for market share.
Lower oil prices tend to have a deflationary effect on the economy,
lending strength to dollar and bringing the price of commodities such as
gold down as well. Also, historic trend shows positive correlation between
oil and gold--making oil price trends predictive of that of gold.
Down
Explanation
Mario Draghis call for structural reform pressured the euro to lose some
ground against the dollar. The sink in the said currency somehow pushed
the Dollar Index to recover from a three-week low and regain its strength
against a broad basket of currencies. This means that trading a
commodity denominated in dollars became more expensive for other
currencies. In effect, the rebound in the dollar price of gold influences the
demand for the commodity to decline. As a result of such, the price of
gold will effectively go down.
Overall Position
Forecast over the evaluation period: Down
Given our analyses above, we believe that gold prices will continue to fall over the next couple
of days. Despite the potential increase in the gold price caused by increased demand in China
and India, several other factors are expected to more than offset this increase. As the Fed
intends to end quantitative easing and has expressed higher projections for interest rates in the
near future, U.S. Treasury yields have risen, and the equity market has also strengthened. On
the other hand, weakening currencies (e.g. yen and euro) and the slight slump in oil prices
further add strength to the dollar, making gold more expensive in the currencies of other