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For so many years, gold has given gains and has also been the highest return generating

asset in its class. But this trend seems to come to an end now where majority of the market

believes that gold is now set to enter the bear market after 13 long years.

Varied reasons are responsible for this sentiments-

A loose monetary policy ,continued fear of a further and worse economic crisis due to weak

global economic growth prospers and continuous prediction of impending inflation and

devaluation of fiat currencies, these are the major reasons apart from the minute ones

responsible for creating belief in the market that the upswing for gold has come to an end.

Bullion surged 70 percent from the end of 2008 through June 2011 as the Fed bought debt

and kept interest rates near zero percent to boost economic growth amid the most-severe

global recession since World War II.

Interest rates have been kept low by the fed’s massive bond buying programme and this has

always supported bullion.

But now there is uncertainty over the market that the Fed may soon start tapering its bond

buying programme either in march or may be soon in December. This picture will get clear

in the coming Fed Meeting to be held on 17-18 December.

Spot gold hit a three week high o Tuesday trading at $1260.24 during the day, It rose as

much as 1.6 per cent. This rise was seen gaining momentum, after the market’s recent

short-covering rally while investors and analysts speculated over the timing of U.S.

monetary stimulus reduction

Just after a gain of two days, gold slipped on Wednesday as short-sellers rushed to cover

bets on sharp price falls, as a tentative U.S. budget deal returned the focus to prospects for

the Federal Reserve to curb monetary stimulus.

This year gold has lost almost 25 percent of its value mainly on fears that the bond

purchases would be tapered.

As soon as the US retail sales data was out on Thursday, gold fell 2 per cent.

The data boosted the dollar and fuelled expectations that the Fed could reduce its bond

buying programme in somewhere in December itself.

The US data released in Thursday, showed that retail sales had climbed 0.7 per cent. Many

traders and analysts in the market are living with the belied that the Fed may start scaling

back its bind purchases at the forthcoming meeting to be held on Dec 17-18. This decision

would be based on positive economic data coming in from the US on employment, housing,

construction, manufacturing and services sector.

Another factor that prompts the Fed to taper QE is the recent budget agreements that

shows hope of a shutdown being overcome.

Though gold rose one per cent on Friday after a two day plunge. the marketers still believe
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that gold is subject to further downfall in the coming week as we witness one of the most

important meetings of the Fed. This shall hopefully be a fate deciding factor for the bullion


Apart from the retail sales data, some important news came in from the SPDR Gold Trust-

the biggest golf ETF. It states that the holding in the SPDR gold trust had fallen the most in

nearly two months in Thursday,.

The limited inflows has restricted an upward movement in gold prices.

But in the Asian markets gold was seen selling at high premiums. Premiums on the Shanghai

Gold Exchange for 99.99 percent purity gold picked up to $10 an ounce from $7 in the

previous session.

In a sign of the toll that labour unrest in South Africa is taking on mining companies, North

am Platinum said on Friday it expected to lose 500 million rand ($48 million) this year due

to a strike by more than 7,000 employees and that talks to end the walk-out would resume

only next year.

For the week, gold was up almost one percent on lower dollar and heavy short covering

earliest in the week.

Moreover, there were reports out that North Korea is selling huge quantity of gold to China

because of a possible economic crisis in the country. If at all this news its true and it will be a

significant driving point for precious metals.

The trade range for gold is $1210- $1270 an ounce in the international markets and

Rs.29000 to Rs.31,000 per 10 gram the domestic markets
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Rajendra Ganotra is the Editor of Spicy Stars Mumbai

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