Fed rate hike may not cause significant sell-off in gold: Citi

While the movement of gold prices will depend on whether the US Federal Reserve raises interest rate this year, David Wilson, Director of Metal Research & Strategy at Citi sees neither significant downside nor any major upside for the precious metal.

Speaking to CNBC-TV18, Wilson says Citi expects a rate hike by the US Fed this year which could moderate gold prices but investor buying will cushion the fall and limit downside. He sees gold prices staying above USD 1,300 an ounce level. 

Indian retail gold demand has been very soft in the first half of the year, he says, adding the second half could be better as good monsoon and upcoming wedding season could lift demand.  

While investor flows have generally been positive in both gold and silver, he notes in terms of price trajectory silver has accelerated gold so far this year.Below is the transcript of David Wilson’s interview to Manisha Gupta on CNBC-TV18.Q: How have you been reading the kind of gains that we have seen for both the precious metals, gold and silver?A: It has been very US data dependent. We saw gold and silver come off prior to this recent month, we saw it come off on improving US data and likelihood of or the market pricing in a September rate hike, we have then had weaker data in that sense that the US rate hike in September saw the dollar softening again. So it is very much US data dependent. Right now the market is moving away from a September rate hike. The dollar has softened as a result and the gold and silver prices have rallied on the back of that. But what is the employment data going to look like over the next couple of months if we get some strong non-farm payroll data reads over the next couple of months and the market will again look at a rate hike this year. So, I would emphasise that the trends are very US data dependent.Q: That always is the case. But the China gold reserves number also have shown an uptick month-on-month basis. Does that number mean a lot to you or is it quite known that many of the central banks have been buying and so has China?A: If we look back over the last couple of quarters and last year, we have seen very strong buyings from the Russian central bank and other nearby countries. We have seen less central bank buying from those regions this year so the central bank sector has not be so supportive this year or buying such large volumes this year as was last year. China is an exception now, but generally the trend for central bank buying has actually been a little bit more moderate this year. In terms of the Chinese markets, retail demand has been particularly soft this year. So, the jewellery sector is actually, the trend is in opposite direction to price trajectory so stronger prices are actually depressed. Gold, jewellery demand in China as has been the case in the Indian market where jewellery demand has been much softer over the first half of this year. Investment demand for gold in China has been stronger. So it is a mixed market from the physical market point of view. But the physical market does not tend to be a driver, it tends be a macro indicator or macro trends and particularly, US focused.