A good manufacturing data, means that there will be increased in demand for gold from China which has already overtaken India as the worldâ€™s largest gold consumer this year
By Prithviraj Kothari
Gold and Silver are likely to rise. Main reasons sited for this are the positive data from China, The Fed meeting to be held in December and the US Fiscal Cliff.
A report showed China's manufacturing Purchasing Managers Index rose to a 13-month high of 50.4 in November, while euro zone data showed manufacturing activity slowed less than expected in November.
A good manufacturing data, means that there will be increased in demand for gold from China which has already overtaken India as the world’s largest gold consumer this year.
On the other hand, the meeting of the Federal Open Market committee in Dec is expected to bring about further monetary easing policies. This may sustain gold prices. Currently for the Fed, the two main topics in the agenda are ‘Operation Twist’ and ‘QE3’.
Operation Twist involves the extension of the average maturity of the Fed’s securities portfolio through the simultaneous sale of short-term Treasuries and the purchase of longer-term ones.
Quantitative Easing 3, better known as QE3 is the outright monthly purchase of $40 billion a month in agency mortgage-backed securities. Now the FOMC may shift to another large scale asset purchase program as the FED cannot continue ‘Operation Twist’ since holdings of short term Treasuries have been exhausted Recently when the Fed announced the launch of QE3, gold prices shot up.
The same is expected to happen with gold if any such announcement by the Fed of another round of quantitative easing is made, Another important factor for gold would be the fiscal cliff. If there is a good resolution on the fiscal cliff then gold prices might go down.
However, Federal Reserve chairman Ben Bernanke on Wednesday repeated a warning that failing to avert a move towards the cliff could lead to recession, and said worries over how budget negotiations will be resolved were already damaging growth.
The US drifting into a fiscal cliff similar to Europe would prove to be a good support for gold and of all goes well then gold might cross the 1770 mark too.
(The author is Managing Director of RiddiSiddhi Bullions Ltd)