Events in USA to influence the prices of yellow metal

Prathamesh MallyaAngel BrokingGold has been one of the best performers in the non-agro commodity space for most of 2016. In the international markets, spot gold has risen by around 20 percent while on the MCX it has gained by same margin.Gold’s shine as an asset class remains the favourite of investors, irrespective of the factors, bullish or bearish for the commodity. The prime belief for the yellow metal is that its prices can never go down. However if one needs to believe this, a reality check is definitely needed.The reason for gold gaining by around heavy margin is on account of financial stability concerns and global growth; fall in global equities, inflows into bullion funds and buyers’ interest on dips for the yellow metal. Besides, the speculative interest in the commodity has had a fair share of play for the price rise in both the metals. Also, investor holdings of gold through exchange-traded products are expanding at the fastest pace in a year, and the value of the ETFs has jumped by $3 billion in 2016.Current Scenario in IndiaAlthough, prices have traded positive in the Indian markets tracking international markets, perspectives have changed in terms of consumption as well as in terms of investment demand. Investors’ interest in gold ETF’s has been declining since past three financial years as they remain bearish on these funds. Funds have witnessed an outflow of Rs.903 crore, Rs.1,475 crore and Rs.2,293 crore in 2015-16, 2014-15, 2013-14 respectively.According to the latest data available with the Association of Mutual Funds in India (Amfi), gold ETF’s have witnessed a net outflow of Rs.462 crore in the period April-Aug 2016 versus an outflow of around Rs.363 crore in the same period the previous year. Similarly the asset base of gold linked ETF’s have dropped to Rs.6,349 crore at the end of August from Rs.6,499 crore in July end.The way forwardGold is a unique asset class which is constantly used to rebalance the risks in the volatile, uncertain, complex and ambiguous environment. The allure for this commodity is seen the most when the risk increases in any part of the globe. There is a demand for the commodity somewhere, something to be aspired or as an investment. If we look at the performance of gold in the past 10 years, the main influence has been the US and its central bank policies which have been at the forefront for driving the price trajectory. These events hold importance in today’s scenario also, wherein the winding up of QE3 was the much hyped and talked about topic in the year 2013 followed by the talk of rate hike by the US federal reserve in 2014 and 2015 and finally the rate hike uncertainty clouding the whole of 2016. Hence, policies adopted by central banks across the globe and US in particular continue to be the driving factor for gold prices.As far as consumption for festival purposes go, Indian gold imports for October’16 are estimated at around 60 tonnes vis-a-vis 30 tonnes a month before. Hence, the festive demand for gold will support a price rise in India in the short term.November election outcome in the US, US Federal Reserve meeting scheduled in December are two key events that will drive further direction in gold prices. The indications of Hillary being in favour for a presidential candidate look more likely after the third and the final Presidential debate between Clinton & Trump (Which was scheduled on Oct’19). These events impacted gold, with prices correcting below $1200 mark.However, our assumption for gold price correction holds true if all the events discussed above go as planned. If there is any change in the likelihood of chances for a victory for Trump in the presidential candidature and US Fed delaying the rate hike in 2016, gold prices in the international markets ($1266/oz) could move higher towards $1400/oz mark while MCX gold prices (CMP: Rs.29865/10gms) can move higher towards Rs.32500/10 gms from a three month perspective.