Stronger US economy pulls gold prices down

Outcome after minutes of US Fed meeting on Wednesday indicated improvement in economy, calls for early interest rate rise

Gold declined in early Thursday trade at Zaveri Bazaar here, following a trend in markets abroad as the yellow metal went down on an indication of a strengthening American economy.

The US Federal Reserve released the minutes of its meeting on Wednesday, which showed a modest growth in the United States’ economy. This restored investors’ confidence towards other asset classes, including the dollar. As gold has a 'safe haven’ status, it has an inverse relation with such trends. Its price declined one per cent or Rs 280 per 10g in spot trade at Zaveri Bazaar to close at Rs 28,050 per 10g. lowest price in last 7 weeks. Price was down 2.6 per cent in last 7 trading days. Spot premiums have become nil, sometimes negative, over recent months.

Abroad, on the Comex, gold for delivery in December fell by $16.50 to $1,280.20 an ounce, the lowest price in over two months. Comex silver last traded at $19.46 an ounce.

“There is no demand either from bulk or retail consumers, who have deferred purchases in anticipation of a further price fall following a cut in import duty. The government hinted it was considering a revision in import duty on gold. Hence, consumers stay away from fresh purchases,” said Lalit Jagawat, proprietor of Nakoda Bullion, a dealer in Zaveri Bazaar.

Following the spot trend, gold price for delivery in October and December fell by 0.85 per cent and 0.80 per cent to Rs 27971 per 10 gms and Rs 28010 per 10 gms respectively in early Thursday trade on the Multi Commodity Exchange (MCX).

The US Fed meeting's minutes said, “The economy is growing modestly but should pick up steam soon. The staff's medium-term forecast for real gross domestic product (GDP) growth was a little revised. The staff continued to project that real GDP would expand at a faster pace in the second half of this year and over the next two years than in 2013.”

Also, the Fed hinted at an improvement in the labour market, with the speed faster than expected. Some the Federal Open Market Committee members want to raise rates sooner rather than later.

“An upward revision in interest rate indicates growing confidence in US treasury and other financial instruments, resulting into the fading of safe haven buying status in gold,” said an analyst.

Further, the US Fed participants generally agreed that both the recent improvement in labour market conditions and the cumulative progress over the past year had been greater than anticipated and that the former had moved noticeably closer to those viewed as normal in the longer run. Deflation fears are diminishing but inflation risks still remain low.

“A further decline in gold prices cannot be ruled out in case the US Fed raises interest rates,” said Jagawat.

Meanwhile, silver in spot trade fell by Rs 200 a kg, to trade at Rs 43,350 a kg.