MCX Gold Races Higher On Solid Fresh Buying

Gold....
MCX Gold futures raced higher in tune with the global cues today as buying interest returned after a massive slide in the last session. Gold slipped for a third session yesterday as traders locked further gains after recent array of gains ahead of the US FOMC meet. COMEX futures had edged up above $1470 per ounce earlier in the week but failed to hold on above the level as commodities witnessed yet another correction. However, some buying is emerging now as investors get over the latest FOMC statement and wait for the European banks turn today. COMEX Gold is quoting at $1454.40, up $8.20 per ounce on the day.

The European Central Bank decided to lower its benchmark interest rate by 25 basis points to 0.50%, very much as expected. However, since this was already factored in, Gold was sitting unmoved after the announcement. The Fed stated yesterday that information received since the Federal Open Market Committee met in March suggests that economic activity has been expanding at a moderate pace. Labor market conditions have shown some improvement in recent months, on balance, but the unemployment rate remains elevated.

Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy is restraining economic growth. Inflation has been running somewhat below the Committee's longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable.

In fact, the Fed expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. This took aside the calls for an early end to the quantitative easing regime.

On Wednesday, China's official purchasing managers' index (PMI), which mainly focuses on the state-owned enterprise sector, fell to 50.6 in April from 50.9 in March, indicating a slowdown in manufacturing activity that was led by a slump in new export orders. A reading above 50 indicates expansion in the manufacturing sector while a reading below 50 means that manufacturing activity shrank.

Gold had tumbled in a freakish manner a few days back. There were concerns that debt stricken European country Cyprus might have to sell gold holdings to raise finances. Traders fear that this would load up supplies in global markets in the short term. Massive unloading in Gold ETF's was also responsible for the worst crash in gold prices for three decades.

Gold corrected more than 40 dollars in the current week before the current upswing. The US dollar slipped to its two month low against the Euro yesterday though some moderate gains have emerged in the currency today. MCX Gold futures broke under Rs 27000 per 10 grams this week and closed with heavy losses yesterday. The counter quotes at Rs 26706, up Rs 166 per 10 grams or 0.63% on the day with 7% increase in open interest indicating fresh buying.

Source by Commodity Insights