Gold dropped on Friday as investors opted for the uncertain equity assets after some mixed economic data from U.S and the fluctuating dollar. However, gold future gained 1% for the week and the favourite metal continued making strong gains because of its appeal for the past two days even though global equity markets seemed low amidst the confusion in Yemen.
Earlier gold rallied after officials from Federal Reserve officials’ commented that U.S interest rates would stay at zero for some time till September. In the meantime, focus of the investors was on the comments from the Fed Chief Janet Yellen who planned to address the Federal Reserve Bank of San Francisco Conference and would be delivering a note entitled, `The New Normal for Monetary Policy,’ before the close of markets.
Ms Yellen’s speech is planned at 7.45 pm GMT where traders would be listening for some indication on when the Fed would start tightening monetary policy. According to Senior Manager Ole Hansen of Saxo Bank, he states that `Yellen has been accused of being too dovish and probably she wants to react by making her speech sound a little less dovish’.
Adjustment from Ultra-Loss Monetary Policy
The Presidents of the St. Louis Fed and Atlanta Fed, at separate events on Thursday said an adjustment away from ultra-loose monetary policy would be needed due to US economy’s improvement since 2007-09 financial crises. By 3.24 pm GMT, spot gold has eased 0.5% to $1,197.70 an ounce and the metal increased to 2% on Thursday to its highest since March 2 at $1,219.40 due to reaction to tensions in the Middle East.
The gold futures of US fell from $7.90 to $1,196.70 an ounce for April delivery. On Wednesday, Saudi Arabia and its associates had launched air strikes in Yemen rattling broader markets and backing gold which is usually seen as an assurance against any risk. Julius Baer, head of commodity research Norbert Ruecker commented that `Geopolitics has never been something which could set a trend in gold prices; it only causes a short term deviation from the existing trend’.
Inspite of the Friday’s losses, gold was back on track to finish the week up at 1.3% after its seven day rally and the metal’s longest winning stretch since August 2012.
Holdings Dropped by 6 Tonnes
Gold showed gains after the Fed signalled caution at its policy meeting last week on the pace of interest rate increase prompting the dollar to drop from multiyear high and a violent rate rise path could affect the demand for gold which is a non-interest paying asset.Caution by the investor was obvious as SPDR Gold Trust, which is the world’s largest gold backed exchange traded fund, post outflows continued and holdings dropped nearly by 6 tonnes on Thursday to 737.24 tonnes which was the lowest since January.
As physical demand all over Asia slowed down, the long rally in prices discouraged most of the buyers. Palladium had lost by 3% to a two month decrease of $743.47 an ounce and platinum was low by 1.2% at $1,139.99 an ounce while silver dropped by 0.6% to $16.97 an ounce.