Gold settled down -0.31% at 26137 as hopes for a successful resolution to Greece's debt talks boosted assets seen as higher risk, such as stocks. Greece's government confirmed it would ask for an extension to its loan agreement with the euro zone, which it distinguishes from its full bailout programme. The market is awaiting further direction from the minutes of the U.S. Federal Open Market Committee's (FOMC) policy meeting later, but looked vulnerable to further losses with the absence of Chinese buyers during the Lunar New Year break. Gold has come under pressure from expectations the Fed will raise interest rates as early as June this year, potentially lifting the dollar and boosting the opportunity cost of holding non- yielding assets, such as bullion. The U.S. Commerce Department said that the number of building permits issued last month decreased by 0.7% to 1.053 million units. The report also showed that U.S. housing starts declined by 2.0% last month to hit 1.065 million units from December’s total of 1.087 million units, worse than expectations for a decline of 1.7% to 1.070 million. A separate Commerce Department report said that producer prices fell by 0.8% last month, compared to forecasts for a 0.4% decline. Year-over-year, the producer price index was flat in January. The core producer price index eased down by 0.1% last month, compared to forecasts for a gain of 0.1% and following an increase of 0.3% in December.
Fed Minutes Show Reluctance To Raise Interest Rates Just Yet
The Federal Reserve was in no hurry to signal a possible interest rate hike in January, according to the minutes of the Fed's most recent policy meeting. However, that meeting took place before January's exceptionally strong jobs report was available, and a number of policy makers have since indicated a willingness to raise rates in June. The Fed said information reviewed for the January 27-28 meeting showed that economic activity expanded at a solid pace over the second half of 2014, and that labor market conditions had again improved in recent months. Even so, members agreed to continue to include language indicating that the Fed can "be patient" in beginning to normalize the stance of monetary policy, particularly given the dramatic drop in energy prices and low inflation. Dropping language that Fed officials will be patient might cause "undesirably tight" financial conditions, some policy makers feared. A number of officials argued in favor of keeping rates at zero "for a longer time," and "many" on the Fed said a premature rate hike would harm the recovery.
Greece Likely To Seek Bailout Extension
Greece is expected to request an extension of its bailout agreement for six months on Wednesday, reports said quoting government officials. At the Eurogroup meeting on Monday, Greece resisted an extension of the current bailout program. Eurozone finance ministers granted Greece time until Friday to apply for extension. The current EUR 240 billion Greek bailout program will expire on February 28. The European Central Bank is set to decide on whether to continue the emergency lending provided to Greek banks.
Strong Dollar affecting gold prices in 2015
The strength of the dollar is a double-edged sword, and it remains to be seen which edge is the sharper. Demand for dollar-denominated commodities such as gold typically weakens on a stronger greenback as it makes the metal more expensive for holders of other currencies, lowering its hedge appeal. In 2015, the Fed will raise interest rates as the ECB launches its own Quantitative Easing program and the Bank of Japan considers more loosening measures. With the U.S. unemployment rate dropping below 6% and wages beginning to rise, the central bank has no choice but to begin the process of normalizing monetary policy. With stocks expected to provide less return, the dollar will become more attractive to yield hungry investors and their demand for the greenback should drive Gold below $1000.
Gold demand in India slipped 14 per cent to 842.7 tonnes in 2014, says WGC
Gold demand in the country declined by 14 per cent to 842.7 tonnes in 2014 as compared to the previous year, mainly due to government policies putting restrictions on imports, according to the World Gold Council (WGC). The overall demand for the yellow metal stood at 974.8 tonnes in 2013, says a WGC report titled 'Gold Demand Trend 2014'. In value terms, the demand for gold dipped by 19 per cent to Rs 208,979.2 crore in 2014 as compared to Rs 257,211.4 crore in 2013, the report said. The total jewellery demand in the country for the last year was up by eight per cent at 662.1 tonnes as compared to 612.7 tonnes in 2013. In value terms, domestic jewellery demand in 2014 stood at Rs 208,979.2 crore, a fall of 19 per cent from Rs 257,211.4 crore in 2013. Total imports of the precious metal stood at 769 tonnes, including grey market, as compared to 825 tonnes in 2013. The robust demand comes despite tighter gold import rules, some of which were removed only in the latter part of 2014.
Recommendation: Sell gold @ 26400-26500 with a stop-loss placed above 26850 for targets of 26050-25760-25320.
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