Late this week, gold on the MCX, gold (FUTCOM - expires on 5th October) dropped by Rs. 952, pushing the price at the local jewellers down by a similar amount. Depending on the city you were in, gold prices on Saturday were down Rs 850 to Rs 1,000, per 22 karats for 10 grams. On Sunday, gold prices at the local jeweller is unlikely to change, as trading does not take place in the global or local markets.
Will gold prices fall further next week?
Let's understand the fact that India does not mine gold. We are dependent on gold imports. So, if gold prices in the international markets go higher, they go up in India too and when they fall they fall in India too. Late this week, gold prices dropped by 2.5% in the global markets, pushing prices in India by a similar margin.
Why did the price of gold drop?
The already falling prices of gold faced another strike by the recent data - published by the US's Labor Department. The report stated the present employment rates and how wages performed in the country. Overall the data gave a positive tone. Unemployment rate sunk to 5.4% from 5.9% in June. The average hourly earnings gain has been 0.4% and work-week has been steady. Non-farm payrolls have also increased by 943,000 in July. It certainly gives an indication that the USA's economy is gaining its pace again. Personal income of people is up-scaling and productions going up too - as more people are getting engaged into jobs.
When the economy is gaining is momentum back, it is expected the USA's Federal Reserve might increase interest rates. Earlier the Fed declared they are not thinking to increase the rates any time soon. But the jobs data released on Friday might change the decision. As interest rates go up, government bond yields will go higher and the US dollar will gain strength. People will be more interested to invest in government bonds, so, major commodities will lose their value. Hence we are witnessing a selling pressure in gold. Apart from this, a major problem is that the US Fed may announce a gradual tapering of its bond buying programme. This may lead to a further fall in gold prices, as liquidity is being withdrawn from the system.
Markets will be keeping a watch on the Jackson Hole Economic Symposium, which is likely by end of August. The Fed Chair Jerome Powell at the platform may indicate a timeline to start outlining the central bank's tapering plans. If there is some kind of indication, gold prices could fall in the international markets, pulling gold prices in India lower as well.
In the global markets, gold closed at $1762 an ounce, dropping 2.5%, post the employment numbers in the US. It is likely that we might see some more downtick later this week. If this were to happen, prices in India would drop automatically. All in all, US inflation numbers, US job numbers and the Jackon Hole meeting in the month of August would be key to gold movement in the international markets and hence in the Indian markets.