Gold prices snapped a seven week wining streak after a stronger than expected US jobs report and as a Duty hike in India soured the investment view.
For the first time in seven weeks, gold prices saw a 2% drop on Friday. Gold had been on the rise since mid-April following trade tension scares and possible rate cuts. Strong US employment data and a strengthening dollar led to a slide in gold prices. Gold is still above key technical levels and likely to settle at a weekly decline of 1%.
Robust Employment Data
Payroll data released by the Bureau of Labour Statistics exceeded forecasts. Nonfarm payrolls hit a five-month high. The dollar surged to a three-week high as confidence in the economy increased. This affects gold prices since the opportunity costs of holding onto the metal increase in the case of no rate cuts. However, employment data is accompanied by a lot of noise and not a reliable indicator of growth.
Indian Import Duty Hike
A proposal in the Indian budget hiked the customs duty on precious metals from 10% to 12.5%. India is one of the world’s biggest gold importers and this move intends to reduce the current account deficit. Gold prices are likely to increase following a weaker rupee. Dealers and traders three-year high discounts. This move is likely to dampen retail trade and increase illegal gold trading.
This rise in prices will lead to an increase in gold trade in the neighboring areas, like Singapore and GCC. Jewelry tourism also offers the advantage of VAT refunds. Businesses may see a forced shift as retail trade in India becomes too expensive, with 12.5% import duty and 3% GST.
For the past few weeks, gold had been trading on a positive note. Despite the strong employment statistics, the three-month moving average indicates a different reality. The American economy is showing a sharp slowdown. Demand-sensitive sectors have shown practically no growth. This increases the possibility of rate cuts and a continued gold rally.