Rupee slide offsets global gold price dip

• Local gold swings between Rs. 327,000 and Rs. 340,000 despite global downturn
• Weak rupee blamed for price mismatch with falling international rates
• Investors scale back expectations of a December Fed rate cut
• Global gold eases as cautious Fed stance dampens safe-haven demand

Although gold prices in the world market have been on a downward trend amidst dimming likelihood of a further rate cut by the US Federal Reserve, the depreciation of the Sri Lankan Rupee against the US Dollar has prevented local prices from falling in parallel with international rates.

Speaking to The Sunday Morning Business, Inamul Hassan of We Buy Gold revealed that gold prices in the local market remained volatile during the preceding week, fluctuating daily in either direction.

“Over the past seven days, the prices have been moving in either direction daily. It fell to a low of Rs. 327,000 and surged to a high of Rs. 340,000 during the preceding week. 

“On 14 November, it moved from Rs. 336,000 to Rs. 340,000; it then fell to Rs. 327,000 before moving up to Rs. 330,000,” he stated.

Hassan revealed that as of Thursday (20) local prices had reached Rs. 330,000 for 24 carat 8 g (1 sovereign) of gold, whilst 22 carat 8 g (1 sovereign) of gold stood at around Rs. 302,000.

He further stated that while local prices had fallen slightly over the past week, the decrease had not been in line with the depreciation observed in the world market. 

Hassan pointed out that this incongruency between local and world prices was on account of the sharp depreciation of the Sri Lankan Rupee against the US Dollar observed over the past few weeks.

According to Reuters, the longest-ever US Government shutdown, which ended the previous week, created a major data gap leaving the Fed and traders flying blind ahead of next month’s policy meeting. However, many investors hoped that fresh data would show a slowing economy, giving the Fed room to cut rates in December, boosting the appeal of non-yielding gold.

“It’s this idea that we are going to see a lesser likelihood of a Fed rate cut in December that is taking some of the wind out of the sails of the gold and silver market,” said High Ridge Futures Director of Metals Trading David Meger, speaking to Reuters.

According to Reuters, these expectations of an interest rate cut have dimmed slightly as Fed policymakers adopted a cautious stance towards additional monetary easing. Traders now see just a 30% chance for a rate cut in December, as per the CME FedWatch tool.

Non-yielding gold tends to do well in a low-interest rate environment and during times of economic uncertainty.

As a result of this, gold prices have been on a downward trend in the world market for the past week.

Source: The morning