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Why gold prices maybe cheaper 6 months down the line?

 Why gold prices maybe cheaper 6 months down the line?
Gold prices, like most asset classes these days move in line with statements from the Federal Reserve and US data.

If you are looking to buy gold, you should wait for 6 months, as you could possibly get the metal cheaper six months down the line.

The simple and the most important reason is based on the argument that the US Federal Reserve would begin tapering its quantitative easing programme, at least by the end of the year.

The Federal Reserve has engaged in asset buying programme, often termed as quantitative easing. Accordingly, the Federal Reserve is increasing liquidity in the system through its asset purchase programme, and this liquidity has found its way into assets like equities and gold.

Now, if the Federal Reserve decides to taper or completely unwind its programme, liquidity would be drained and gold could come under severe selling pressure.

The Fed wants to see job rates improving before it scales down and completely unwinds its stimulus. There are signs that the economy in the US is growing and job rates improving. The manufacturing data which came out of the US was also encouraging. Therefore, we are likely to see the Fed tapering its programme somewhere in December and this could make gold cheaper.

However, for Indians buying gold, the other variable would be the rupee. If international prices of gold fall and so does the rupee, we are unlikely to get gold cheaper, because of the falling rupee. Indians wanting to buy gold should pray that the rupee gains against the US dollar and international prices of gold fall.

Read more about: gold
Story first published: Saturday, August 3, 2013, 10:18 [IST]
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