By Bhavik Patel The minutes from the Federal Reserve's July monetary policy meeting which was published yesterday gave investors some direction that Fed members are looking at rate cut in September. The gold market is holding near its session highs and is seeing limited bullish momentum as market has already priced in 25 bps rate cut. According to the minutes “All participants supported maintaining the target range for the federal funds rate at 5-1/4 to 5-1/2 percent, although several observed that the recent progress on inflation and increases in the unemployment rate had provided a plausible case for reducing the target range 25 basis points at this meeting or that they could have supported such a decision”. There are no big surprises here but this paints a picture of the Fed on track to cut in September. Driving this heightened demand for gold is not only the prospect of a looser monetary policy, but also the continued accumulation of the yellow metal by central banks around the world. Globaly central bank gold holdings have been on the rise, with institutions seeking to diversify their reserve assets and hedge against economic uncertainty. The People's Bank of China has given several commercial banks new gold import quotas in anticipation of revived demand despite high prices. Chinese central bank granted the new quotas this month after a two-month pause due to slower physical demand caused by record-high prices. Chinese 10 yr Treasury yield is trading at multiyear low so consumers have less avenue to invest which is luring the prospects of buying gold. If the Federal Reserve's policy direction doesn't change in an unforeseen way, the path of least resistance for gold looks to be firmly upward. Gold's incredible rise is projected to continue as the central bank is predicted to start a cycle of rate cuts in the upcoming months. However we are cautioning at the current juncture as we have seen this year that whenever gold makes fresh life time high in COMEX, we have seen profit booking in the tune of 5-6%. Fed chairman’s speech on Friday would give possible direction of rate cut to traders and gold might make short term top post the speech and witness some profit booking. So the trend still is positive but expect some pullback later in the week (About The Author: Bhavik Patel is a Senior Commodity/Currency Research Analyst at TradeBulls Securities.) (Disclaimer: Views, recommendations, opinions expressed are personal and do not reflect the official position or policy of Financial Express Online. Readers are advised to consult qualified financial advisors before making any investment decisions. Reproducing this content without permission is prohibited.)
