Gold: Syrian military action, Fed action to decide movement

Updated: Tuesday, September 3, 2013, 13:53 [IST]

Gold Futures in India hit a record high this week of Rs 32,600, breaching its previous record achieved in November.

The record had largely to do with the fast depreciating currency. Of course, worries over military action in Syria also helped contribute to the record movement. Gold rises when there is fear and anxiety around, and therefore it is known to be a safe haven investment.

The month of September is likely to be action packed for gold. In the first week of September gold could rally, as it looks increasingly possible that there could be a military strike on Syria. The longer the strike takes, the longer will gold prices stay elevated.

But then, the good news for gold prices staying elevated might end. The US Federal Reserve Open Market Committee meets on September 17 and 18, in which a decision on tapering-off the Fed's asset purchase programme might be decided.

The Fed is purchasing assets worth $85 billion each month to help spur economic growth in the US. The purchase of these assets adds to liquidity in the financial system and a lot of this easy money finds its way into stock markets and gold. Turning off the liquidity tap would be bad news for gold.

In India much would depend on how the rupee behaves. If it continues to fall, gold prices would remain at elevated levels. If it strengthens against the US dollar, for us Indians gold would be cheaper.

In any case its going to be an action packed month of September for gold. Which way it will head, is difficult to tell.

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