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Gold In No Man's Land Ahead Of FOMC

Capital Market/ 17:25 , Jul 30, 2014

Gold is in no man’s land ahead of the FOMC decision. The metal is lingering around$1300 per ounce mark today, maintaining its recent momentum though the sentiments are abit weak after intraday losses in last session. Gold gained from lows last week assentiments were boosted after comments from Indian officials that the country is notplanning to cut its gold import duty in the near term. The momentum looks strong for themetal on the whole. However, the metal fell this week even as reports of EU imposingtougher sanctions against Russia hit markets and Israel continued to attack Gaza strip.Gold eased last night following losses for DOW and is quoting at $1301 per ounce, up $1per ounce on the day. MCX Gold futures are trading at Rs 27795 per 10 grams, down Rs 71per 10 grams on the day.

Global stocks are trading water today. The Federal Reserve's Federal Open MarketCommittee is set to announce the results of its latest two-day monetary policy meetinglater in the evening. Markets largely expect the FOMC to take another $10 billion off itsmonthly asset purchases comprised of a $5 billion reduction in its purchases of bothTreasury bonds and mortgage-backed securities.

The US stocks rose last week as across the board gains pushed the S&P 500 to closeat a record, inching towards the critical 2000 points level. This capped advances forgold. The latest leg down in gold has affected the sentiments as the metal is unable togain from geopolitical unrest and equities are managing to hold up at the same time. USintelligence officials presented reporters that Russian-backed Ukrainian separatists shotdown a Malaysia Airlines jetliner, according to media reports. This is likely to lead to aflare up in already strained Russia-US relations.

A latest update from the World Gold Council (WGC) suggests that while the gold pricesare up in last few months, the volatility is down and gold has defied the bearish outlookfor the metal at the beginning of 2014. The WGC notes in its Investment Commentary for theFirst half of 2014 that consumer demand remains resilient for gold even after a recordyear in 2013. Central bank net purchases have picked up, adding approximately 180 tonnesto official reserves from January to May and the jewellery demand had its best firstquarter since 2005.

India's Finance Ministry has stated that currently it has no proposal to lower customsduty on gold from the current 10%. This is likely to disappoint the local gold importersas there were high expectations of a cutback in the gold import duties following theimproving current account deficit and rather mild undertone in global gold prices.Currently, there is no proposal to reduce the customs duty on gold, Minister of State forFinance Nirmala Sitharaman said in a written reply to the Lok Sabha. The quantity of goldimported during the April-June quarter of the current fiscal was 221 tonnes, while invalue terms it was Rs. 54,792 crore. The value of imported gold stood at Rs. 2.28 lakhcrore in 2011-12, Rs. 2.45 lakh crore in 2012-13 and Rs. 1.60 lakh crore in 2013-14.However, there has been a massive increase in gold smuggling.

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