Participants in the Indian gold market are anticipating a further drop in the dollar price of gold before the end of 2015, with one dealer saying that while current demand was strong, volumes of gold purchased will rise considerably if the Federal Reserve increases interest rates in December.
Data released in the past week, including a revision in third-quarter US GDP, was said to be providing further weight to a December rate hike, with the probability now above 70%, according to Fed Fund Futures estimations.
SP Angel said that if November's US non-farm payroll figures are in line with expectations -- higher than 200,000 -- the momentum in the labor market would push the probability of a rate hike even higher.
In the Indian physical gold market, a Mumbai-based dealer said market behavior was geared towards the increasing likelihood of a rate hike, saying buyers were holding off activity until prices dropped to around $1,000/oz.
A trader added that lower dollar gold prices would reduce the import duty to bring gold bars into India, and predicted the duty would drop by $1/oz this week as a result of lower prices.
While there were bearish price expectations among Indian market participants, analysts at Sberbank said a December rate hike had mostly been factored into prices, but said they could slip below $1,000/oz.
Spot gold prices in London traded at $1,056.10/oz as of 1145 GMT Monday, falling to a five-and-a-half-year low.
Despite market participants hearing that traders were waiting for lower dollar prices, the consensus was that demand still remained robust in the aftermath of Diwali, particularly in comparison to October's weak demand.
"This year Diwali has lifted the market [...] The local market was trading at a significant discount ahead of Diwali. Domestic spot gold prices were trading at a discount as high as $9/oz just 10 days before Dhanteras," analysts at Metals Focus said.
Platts India Gold Premium was assessed Monday at $1.75/oz above London spot prices, with demand across the country strong and imports heard above October levels. Market participants predicted higher regional premiums this week, with a likely reduction in the import duty.
