This week, gold prices have skyrocketed towards the high of US$1,214/oz, helped by currency induced movements, fragile global equity markets and improvement in ETF inflows. On investment demand side, holdings in eight major gold ETFs rose to their highest level since July 2015 and recorded their biggest five-week surge since March 2011. In the currency markets, Yen maintained strength against US dollar, with values surging to 15 month high of 113.3. Euro also move higher towards the 1.13 level, while sterling scaled above 1.45. The markets are also deriving impetus from Fed Chief Janet Yellen’s testimony to US Senate. Although Yellen stated that the central bank will not likely undo the process of policy normalization, she tried to strike a balancing tone by acknowledging that financial conditions in US have recently deteriorated and if they prolong then it can adversely impact the economy and labour markets. Investors are now focussing on what central bank intends to do in March and consensus clearly calls for no change in the interest rates during the first half of this year. Considering the overall dovish perception on the monetary policy stance, we expect US dollar to lose further ground against the basket of currencies and provide the fuel for gold prices to extend the upside.
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