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What's happening in the world of gold trading?

Gold ended last week at a three-week high, and the rally in prices seen after the US dollar lost ground stayed steady early in the week but has failed to hold its momentum.

The gold spot price had responded to falls in the value of the US currency, which had been trading at eight-week highs, following its usual pattern of rising in correlation with a weakening of the dollar.

The Daily 1% Swing

By 17:00 on Friday (4th December), the spot price had reached £716.65 per troy ounce and maintained these levels for much of Monday. As the week went on we saw fluctuations of around one per cent, almost on a daily basis, as traders came to terms with the higher price point but failed to find a clear direction ahead of the potential increase in the US interest rate.

While positivity held early in the week, the gold price took a sharp dive to £707.06 at 17:30 on Wednesday. In early trade today (Thursday 10th December), the spot price stood at a more stable £707.82 per troy ounce, with attention still very much focused on the big market announcement: the Fed’s decision on US interest rates.

Traders await Fed’s next move

This week’s gold trading has again been overshadowed by the wait for economic news from the US. Gold traders are awaiting the US Federal Reserve’s monthly interest rate-setting meeting on December 15 and 16.

It is widely forecast that the Fed will increase rates by a quarter of a per cent on the back of positive jobs data in the US. If it does, the gold spot price is likely to fall further because gold is considered a safe haven for investors during volatile periods; a more settled economy exhibiting growth tends to see more money moved into less stable investments.

Mark O’Byrne, from Dublin-based investment firm GoldCore, told Marketwatch: “Gold appears vulnerable to further weakness as traders remain fixated on the likely Fed interest rate rise next week.”

His views were echoed by other market analysts, with Bob Haberkorn, a senior commodities broker at RJ O’Brien in Chicago, telling the Wall Street Journal: “The market’s just not going to have much direction until the Fed.”

Simona Gambarini, commodities economist at Capital Economics in London, told the same publication she believed investors were already taking the expected rate rise into account.

“The real surprise would be if the Fed doesn’t hike rates,” she added.

However, Mark O’Byrne pointed out that China, the world’s biggest gold-buying nation, was likely to prevent the price of the precious metal from slipping too steeply. Demand for gold, and therefore the price, traditionally increases in the run-up to the Chinese New Year festivities.

An Indian exchange

Meanwhile, India which ranks second to China in the global gold-buying stakes, is firming up plans to open its first national physical gold trading exchange.

The idea was initially floated by India’s economic affairs secretary, Shaktikanta Das, and this week was taken up by the India Bullion and Jewellers Association (IBJA). It wants to establish the exchange, similar to one already operating in China, to give the cash-heavy market a transparent and regulated platform. In China, all gold bought and sold must be done so via the gold exchange.

The Indian government is keen to free up the amount of gold held in the country to reduce reliance on imports. As a result, it has monetised the precious metal and opened sovereign bond schemes for investors.

The IBJA is keen to launch the physical exchange within the next six months and is currently seeking partners to run the platform.

Article Last Updated: Thursday, December 10, 2015