Asian demand outlook limits or supports gold prices, focus on Fed FOMC meeting minutes
Gold continued to trade lower on Tuesday, analysts said, butFalling prices boost demand in Asian countries. Markets turned their attention this week to the Federal Open Market Committee (FOMC) meeting minutes after reassessing Fed rate hike expectations.
In February, the gold market fell about $100, with spot gold last trading around $1,836.50 an ounce.
But Commerzbank analyst Carsten Fritsch said,Lower gold prices favor retail buyers in Asia, suggesting there may be a price bottom in the recent gold sell-off。
This can be seen in the rising premiums in Asian countries. “In response, Indian gold traders demanded a premium of $2 per troy ounce over the local official price. The week before, they were forced to give a discount of $18 per troy ounce. The increase in demand matched the reduction in supply,” Fritsch noted. Matching, gold imports were delayed in anticipation of a possible reduction in import duties, which did not materialize.”
India’s gold imports plunged 76% year-on-year in January as higher local prices and higher import duties sapped demand.
Higher import duties are forcing jewelers to wait before buying more gold in the hope that the government will decide to lower import duties. It had been hoped that India would cut import duties in its annual budget tabled on February 1, but that did not happen. Instead, India raised import duties on silver to better peg it to gold.
The rising demand shows just how price-sensitive buyers of gold in the world’s largest consumer nation are.
Fritsch pointed out,This means for global gold prices that overall losses may be limited.”While that doesn’t mean they’ll be able to push gold prices much higher, it does,” he said.They could stop or at least slow down any further declines in gold prices。”
On a macro level,Gold markets still digesting rate hike expectations sparked by last week’s strong U.S. data。
Daniel Hynes, senior commodity strategist at ANZ, said: “Gold fell to a six-week low last week amid hawkish comments from Fed officials. Two higher-than-expected inflation data led policy makers Mester and Bullard to suggest ,Further sharp rate hikes may be necessary.Dollar and U.S. Treasury yields both climb, creating headwinds for gold。”
This week, all eyes are on the minutes of the FOMC’s February meeting, but analysts noted that,Because of timing, its impact will be limited.The Fed’s last meeting came ahead of strong U.S. employment and higher-than-expected inflation reports。
Rupert Rowling, money market analyst at Kinesis, said: “The minutes of the FOMC meeting three weeks ago should give us a better idea of how hawkish the Fed is.A number of central bank officials have recently made comments suggesting that it is possible to resume raising interest rates by 50 basis points.These hawkish comments are the cause of gold’s decline, so gold holders will want the minutes to be more dovish. “
Market fears the Fed could return to raising interest rates by 50 basis points due to stubborn inflation and a strong economy. But many analysts disagree.
James Knightley, chief international economist at ING, said:Following the 25 basis point hike in February, we believe this will be the standard incremental move going forward。”
He believes that the strength of the US economy in January may only be temporary. “The dramatic change in weather could simply mean that spending that should have been done in February and March may have been brought forward, leaving open the possibility of a pullback in the coming months,” Knightley said.
Other data closely watched by markets include revised fourth-quarter U.S. GDP on Thursday and the U.S. PCE price index on Friday.
Spot gold daily chart
At 11:08 Beijing time, spot gold was trading at $1,836.50 an ounce.