International gold prices are headed for their first drop in 12 years. In fact, they have lost a fifth of their value this year and unless prices rally substantially in December, they are set to end the year lower. Here are five things and events that would move gold prices either way in the coming months.
Will the Fed taper or not?
The US Federal Reserve would end its two day meet on December 18, wherein, it would decide whether to taper its bond buying programme. Should it decide to taper, gold could end the year on a disastrous note. Should the Fed decide to hold its tapering of assets purchase, gold might see a small rally. Asset purchase programme unleashes fresh money into the US economy which could find its way into gold purchases.
Will the rupee continue to remain strong?
The Indian rupee is one of the variable that affects the prices of gold and a drop in the rupee makes gold more expensive. International gold prices have dropped this year, but, Indians could not get gold cheaper, because the rupee dropped as well, negating any benefits of falling gold prices internationally. If the rupee starts gaining against the dollar, we might get gold cheaper.
Will demand rise?
India is the largest importer of gold and the government has discouraged gold imports by unleashing a series of measures. This was largely done to prevent the Indian rupee from falling, as gold imports result in a lot of dollar outflows, putting pressure on the Indian rupee. Any further reduction in physical demand from India, is likely to push international prices lower.
Gold ETFs show steady progress
If, Gold Exchange Traded Funds continue to see redemption pressure, it is likely to push gold prices lower.
Impact of geo-political tensions?
Gold prices rally when there are geo-political tensions and drop when they are resolved. Last week gold prices fell after world powers agreed a deal with Iran. At the present moment there is very little geo-political tensions around the globe, which is likely to keep gold prices subdued.