It is likely that the prices of gold will fall owing to the recent Fed Rates hike. On the other hand, the demand of the precious metal might dwindle to a point where it is only expected to come from urban India alone. This is according to a report released by analysts in this industry.
It is known all over the place that Gold trade in the United States and other parts of the world was awaiting the US central bank’s rates action released on Thursday. This is mainly because it will have a major impact on the price of the metal and thus also affect its demand. Notably, on the same Thursday (yesterday the 17th of Sept 2015), India was celebrating Ganesh Chaturthi which basically marks the beginning of the major festival. This is always a major buying period for gold and a myriad of other precious metals that are commonly traded around the world.
According to bullion dealers, if it happens that prices fall to Rs 25,300 per 10 grams from Rs 25,900 following the Federal Reserve‘s announcement, the demand might be seen to be emerging largely from urban India. The demand for precious metals in India is mainly for purposes of meeting need-based requirements.
In that same perspective, bullion dealers and jewelers are not taking note of any immediate pickup in terms of demand for the case of gold as an investment. Moreover, a fading monsoon seems to be to be going on as irritant to the up country purchases of gold in this festive period in India. Apparently, rains in the next couple of days are of great essence for the gold offtake in rural India. It accounts for 60% of the nation’s annual gold consumption of 900 to 950 tons of gold.
Saurabh Gadgil, the vice president of the India Bullion and Jewellers Association said recently that that the United States Federal Reserve has been talking much about a rate hike for quite some time now. Now it is important to wait and see the effects of the steps taken by Fed on Thursday in order to make the market for Gold and other precious metals more favorable. If Fed happens to hike the rates, then it means that gold prices will most definitely fall. Again, even if the prices that are existing in India do not change in the meantime, it is expected that there will be a very significant demand in the rural areas of India imminently if it rains heavily over the next fortnight.
According to Ganesh Chaturthi, expenditure on gold has been far much less this year unlike the case was in the last year across the entire Maharashtra. This is quite the indicator of the things that are in offing. However, it is important to understand that trade is currently keeping its fingers crossed. There is need to make sure that the market is favorable for both the gold buyers and sellers so that in the end it can be a worthwhile investment.
One Ketan Shroff, a director of Penta Gold argues that if it happens that Fed does not hike its rates, it might at least offer clarity of any possible rate hikes over the coming couple of months. This is definitely necessary. If it hikes the rates, prices of gold will dip considerably and even reach $1080 per ounce.
With regards to the state of international markets, gold edged a bit higher on Wednesday but kind of struggled to break away over the one month flow that had been the case until the previous week. A section of bullion dealers argue that the market has so far discounted a Fed Rate hike and the impact on its prices is quite considerable. If fed hikes rates, the prices will come down and subsequently boost demand for Gold. Everyone is definitely keeping watch to see the action that the Fed will be taking.