The worried and hassled world of bullion investors heaved a sigh of relief following the release of US Federal Reserve report this week following which the gold prices showed signs of gains.
US Federal Reserve announced plans to boost a flagging economy by reinvesting money from maturing mortgage bonds in government debt. The move did not come as a complete surprise to the market but it marked a policy shift for the Fed, which only a few months ago debated how to start winding down some of its monetary stimulus programmes. The Fed's pledge to maintain asset purchases and shift to Treasuries does suggest it may boost the size of its already massive $2.3 trillion balance sheet if the economy loses momentum.
This has given a clear hint to the bullion market that things are not hanky-dory and in the coming days the yellow metals may cash in on the uncertainty in the market to zoom past $1200 per ounce.
Gold traded around the 1198-1202 zone in the early deals on Wednesday as markets were still attempting to ascertain the impact of Fed move on the bullion markets. As things stand it looks like, gold would continue to wobble in the known ranges of 1184-1212 in the near term.
Gold holdings in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, were unchanged at 1,282.75 tonnes on Tuesday. Silver for immediate delivery was little changed at $18.30 an ounce and platinum rose 0.6 percent to $1,553.10 an ounce, while palladium climbed 1 percent to $480.75 an ounce.
Last Friday, the price of gold closed in the US above the $1,200 level for the first time since mid July. It was also the eighth consecutive day that gold had closed higher in US markets than the day before.
Reason for this upward movement in gold is that investors have realized the flaws in the US government's policy of pumping in cash into the market. Boosting the money supply will not be as effective in the short term as it used to be.
Another factor which is boosting the gold prices is the demand from China and India. Since India's festival season is about to start, demand for gold is set to go up. Whether it's festivals like Diwali or Akshaya Tritiya or events like weddings and child birth, gold is considered very auspicious in India. Many families start accumulating gold coins and ornaments in anticipation of a wedding in the family, or in preparation for the religious holidays.
All over the world, including India, gold is seen as a safe store of value. For instance, the Reserve Bank of India and almost every country's central bank, keeps a part of their reserves in gold. Similarly, the common man also buys gold bars, coins and bricks for investments.