With the US Federal Reserve’s meet of last month revealing that bankers want to end the $85-billion-a-month stimulus programme sooner, gold prices in the domestic spot and futures market are headed further south on Thursday.

Minutes of the October 29-30 meeting showed that the US Fed officials are keen on beginning to taper the central bank’s bond-buying programme in lieu of pumping cash into the economy at one of the next meeting. The caveat, however, is that signs of economic recovery should be clear.

The release of minutes saw panic grip the market with Bloomberg reporting that Comex suspended its trading for 20 seconds after the prices dropped $11 within a minute.

Rupee Vs dollar

The problem for the domestic market, however, could be that the development has strengthened the dollar. This could see some pressure on the equities market and weakening of the rupee.

A weak equities market could see investors in India looking at gold. At the same time, the rupee’s fall against the dollar makes imports of gold, crude oil and vegetable oils costlier.

Still, the overnight fall has been steep that prices per se will drop. In addition, RBI seems to have a system in place to check the rupee’s fall after last week’s plunge.

Bearish developements

Further bearish developments were in the form of Singapore raising its GDP growth projections for this year after the economy expanded in the third quarter.

The other drag on the counter is the drop in gold holdings in gold exchange-traded funds. Holdings in SPDR Gold Trust, world's largest exchange-traded fund for gold, declined on Tuesday to 860.31 tonnes, down over three tonnes.

Spot gold, gold futures

In early trading, spot gold in Singapore looked up a tad at $1,248.25 after Wednesday’s night bruising. Gold contracts maturing in December quoted at $1,247.40 an ounce.

In the domestic market on Wednesday, gold for jewellery (99.5 per cent purity) ended lower at Rs 30,875 for 10 gm and pure gold at Rs 31,035.

On MCX and NCDEX, gold December contracts could open below Rs 30,000.

The signals emanating from the US Fed meeting minutes is also putting pressure on gold, cancelling out the effect of Iran beginning talks on its nuclear programme. Saudi Arabia’s increased output is also a drag.

Brent crude, US crude

Brent crude January contracts ruled at $107.83 a barrel and US crude at $93.64.

The oils and oilseeds market will likely lose steam on prospects of the soyabean crop in South America improving. Lower Malaysian exports and peak production season for palm oil could add to the pressure.

Chicago Board of Trade soyabean for delivery in January ruled at $12.76 a bushel. Crude palm oil on Bursa Malaysia Derivatives exchange ended at 2,579 ringgit or $811 a tonne on Wednesday.

Wheat and corn are headed lower on lower exports and higher production.

(This article was published on November 21, 2013)
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