Expect US Fed won't raise rates, to support gold: BullionVault

The US stock markets are seeing their strength coming back with volitility on the lower side, says Adrian Ash, Editor Gold News and Head of Research, BullionVault. The job growth in the country has also risen. But the major indicator, inflation, has seen an upwards trend in the US. So Ash says the Federal Reserve will not be able to justify a rate hike and may keep them unchanged. This will also support gold prices. The main demand for gold is coming from Western countries, says Ash. Demand from India has been very weak. He says measures taken by the government to curb imports has led to decline in gold demand.Below is the transcript of Adrian Ash's interview to CNBC-TV18's Manisha Gupta. Q: What are the markets really looking for on the FOMC meeting and how would you read the bit of strength that we have seen come back in gold? A: I think consensus remains that the Fed won\\'t do anything tomorrow. It would be a big surprise if they do even though this is a good moment for them to raise because that's really what they are supposed to do. Stock market strength in the States has come back. We are at a new all time high at the start of September. Volatility remains low although we had a bit of an uptick. Obviously jobs growth in the States has been very strong fulfilling of the Fed's mandate. The missing thing here is inflation. We saw an uptick in US inflation on the latest data particularly in the core CPI excluding fuel and food. However we are nowhere near the 2 percent annual target that the Fed has. Given that that is half of its mandate and this is what modern central banking is about. It is about inflation targeting, I think it would be very difficult for them to justify a rate hike other than just say we are just raising, ready to cut again next time there is a financial problem. I think this is where gold has got caught in the last couple of months. I think we are seeing a bit of a physical demand coming through from the big Asian markets - India and China - at about USD 1300-1310 where we have been in the last couple of weeks. However gold strength at the moment is very small. I think we are just seeing markets tread water because what the Fed does tomorrow is really going to determine the direction for markets for the rest of the year. Q: You mentioned about China and India and we have seen demand actually on the weaker side even as prices have been higher, the returns have been good, the investment demand actually has picked up but much of that has been in the western world and India hasn’t really participated so much when you look at the official numbers. A: That is because of price. If you look at what the Indian government is attempting to do to Indian household gold demand over the last 3 years since the de facto ban on imports in 2013, with the 80:20 rule, the block on gold coins, retailing and so on, none of these things did anything like what the price has done in 2016. Indian gold demand has been very weak 50-60 percent down year on year and we have all seen very high discount that Indian gold prices to London quote, international quotes have shown throughout the year. However that has reduced a little bit over the last couple of weeks. However I think it is a function of price and we have seen the same thing with the Chinese gold market as well, the household demand has been very much lower really as a function of price. I think there perhaps is disappointment from investors that there hasn’t been more follow through from the big demand centres. However you are absolutely right the big move in 2016 in price has been driven by western investors particularly western professional investors, hedge funds, money managers and so on. That has tailed off over the summer, hence the price has gone flat. Normally September is very busy for the gold price, we normally see a big move up in September but we are not seeing that so far after seeing a very big move in June and then through July. So, it is going to be interesting to see what impact the Fed\\'s non-decision which is what I expect will happen tomorrow, what that has on gold will reinvigorate the gold price going forward.