GOLD nearing 1650?

                                                 

Gold and silver tumbled once again this week with other commodities like crude and stocks.

This was over lapped with the depreciation of the Euro and other important currencies against the USD.

Bullion has fallen around 5% since hitting an 11 month high above $1795 an ounce in early October after the excitement ignited  by the US Federal Reserve’s ;attest programme of purchasing mortgage backed debt died down.


Spot gold traded near weeks low at around $1703. Silver too was hovering around $31.70.
The main topic for discussion this week was The FOMC statement. US Flash Manufacturing PMI, Bank of Canada’s Monetary Policy, ECB President Speaks and German 10 year bond auction.

Flash manufacturing and services PMI data from the euro zone was mixed. While French data beat expectations, German figures disappointed - the German Ifo business climate also fell to its lowest since March 2010 at 100.

Poor German manufacturing and services PMIs pulled down the euro zone-wide reading. The euro zone flash manufacturing PMI was expected at 45.3 but came in at 46.6, while the services PMI at 46.2 was below the forecast 46.5.

All told, the 17-nation Euro zone "sank further into decline at the start of the fourth quarter," added the Market PMI survey, pegging the drop in manufacturing and service output at its fastest pace in more than three years.

The much awaited FOMC meet that concluded on Wednesday did not bring many changes for the market.

The Fed acknowledged the unemployment rate remains at an unhealthy and elevated level. It concurred companies are sorely feeling adverse effects to their bottom line from slowing growth. And while the ailing housing market is showing some signs of life, the Fed agreed housing has a way to go before a recovery can be called. Other than the inflation comment, nothing game-changing was announced, unlike last month's delivery of QE3. 

The announcement or lack thereof wasn't a surprise and didn't mean much to markets.
Maybe one of the reasons for such a calm statement was the proximity of the US Presidential polls to be held on November 4.

It is highly unlikely that the Fed will adjust interest rates or modify quantitative easing (QE3) programmed before that. Comments from FED “To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month.  The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of Treasury securities, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities.  These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.”

Worldwide, the economy is weakening resulting in high inflation. The developed and the emerging economies like Euro, India, China and Japan haven’t shown much signs of a better growth.

Gold’s recent decline has also been driven by uncertainty related to the so called ‘fiscal cliff’, automatic spending cuts and tax rises which threaten to send the country back into recession if Congress fails to reach a deficit reduction deal by end of 2012.

Today in India – the world's largest consumer market, where next month's Diwali festival will mark the peak of annual demand – dealers saw "bargain hunting" by jewelers and other stockists.

Some positive events to watch out for include the upcoming festival and marriage seasons for the Indian consumers to buy gold. Bullion price in India has retreated 4.4% from the high reached on 14 September. Gold demand is expected to rise in Q4 2012 due to weaker prices and stronger jewelry and investment purchases. 

The trend seen over the years is that gold prices rise during Diwali and Silver manage to edge up post Diwali.

Now with the festival of lights just being a few days away, all we can say that we hope that Gold illuminates too this Diwali.

SONE pe ZANJEER!

 Few of my images from an interview cum panel discussion on a special show named “Sone pe Zanjeeer” aired on CNBC Awaaz on 27th October. It was a special story covering gold, its side effects and alternate ways of reducing fiscal deficit rather than levying high import duty on gold.

It was my call that the government must introduce gold bond schemes in the market. This is the best way to get the household gold into the market. This gold in turn will be borrowed and lent. This will in turn balance the economy. 

          In 2010, 1006 tonnes of gold were imported where this figure dropped to 933.4 tonnes in 2011.

Levying import duty on gold will surely reduce imports and balance the deficit but it will also encourage illegal channels of getting gold into India. Hence the government should execute other alternative modes like gold bonds etc rather than levying high import duties on gold.

GOLD FAILS TO BREACH THE $1800 MARK

Last month gold was at an 11 month high. It increased by almost $65 in September following the Fed’s announcement of QE3 launch.

However this week there were mixed sentiments from the market. In the beginning of the week, Gold gained support from ETF buying. Gold holdings with SPDR ETF hit record high level last week and rose for the eleventh consecutive week. Also supporting gold price were the continuing labor problems in South Africa. As per latest reports, mine workers have rejected revised pay offer by gold companies. Tensions could rise in coming days as mining firms may prepare to carry out more mass firings if the strikers don’t return to work. Meanwhile, central banks have continued to take measures to support their economy. 

But Gold failed to breach the $1800 mark.  Spot gold was down 1.2 per cent at $US1720.90 an ounce in late New York trade, after hitting a low of $US1715.79, which marked the cheapest price since September 7.

Gold also notched a near 2 per cent decline this week, its biggest weekly drop in about 4 months. The metal has so far failed to trade above $US1800 an ounce this year.
Gold fell over 1 per cent to a one-month low on Friday, its biggest daily drop in more than three months, hit by technical selling and tumbling US equities on economic uncertainty around the world.

The yellow metal has also been hurt by positive economic data coming out of the US, which means a quicker end to QE3 than expected. QE increases gold's allure as a hedge against inflation amid currency depreciation.

Gold also shrugged off the largely better-than-expected Chinese numbers - third-quarter GDP growth at 7.4 percent on the same quarter of last year was in line with most forecasts but a drop from 7.6 percent in the second quarter.

Moreover, weakening performances from companies like Microsoft etc resulted in a fall in equity markets which in turn showed its reflection on gold.

In other precious metals, silver was last at $32.37-32.42 per ounce, down 45 cents on Thursday’s close, platinum at $1,628.75-1,638.75 was down $9.75 and palladium was $4.20 lower at $636-642.

Now, focus will continue on major economies. For US, focus will be on US economic data and comments from Fed officials. Fed has already announced additional asset purchases which are supportive for gold however economic numbers will give an idea as to how long the bond purchases will continue. For euro-zone, focus will be on development in Spain, Italy and Greece. Market confidence is shaky as regional economies remain under pressure however continued measures by European leaders will limit downside.
Traders are now worrying that without a clear catalyst to push prices higher, gold will continue to drift lower in the coming weeks.

Gold Loses its Glitter

Last fortnight gold reached $1796.5- an 11 month high; following comments by ECB president Mario Draghi that more bailouts maybe approaching. He stated that “euro” is irreversible and that the bank was equipped to purchase the bonds of indebted countries.
Positive jobs figures, which raised hopes that Federal Reserve intervention through a third round of quantitative easing (QE3) will be short-lived, have boosted the US currency, while the euro has been under pressure from news that Spain may resist asking Brussels for a bailout. 

However last week, gold was moving on a slightly lower side- at around $1765 on Thursday morning. A stern warning by the IMF on global economic growth and a slow development of the Chinese economy resulted in this downfall.

On Monday, Gold was down 1.2% at 1733$ per ounce. This yellow metal hit a one week low following news from Euro Zone officials that Spain could ask for financial aid from the bloc.

Heavy fund liquidation and technical selling also pressured gold as data showed U.S. retail sales rose in September after Friday's strong consumer sentiment data. Bullion could see more weakness as investors feared the Fed might curb its stimulus due
to a brighter economic outlook

Gold rose to a 2012 high of $1,795.69 an ounce earlier this month. However, several subsequent rallies to break above $1,800 an ounce had failed and were met by heavy technical selling.

Also weighing on gold was data showing Chinese inflation was subdued in September while exports had rebounded at nearly twice the rate expected, dampening expectations for easing measures in the world's second largest economy.

This week the main topics of discussion are- revised German and French CPI data, Italian Bond sales results, US Q3 earnings and the LME week.

The Italian Bond Sale Results May Spark Euro zone Crisis Fears if Yields Rise. The European Union sovereign debt crisis and specifically the countries of Greece and Spain remain a major worry for traders and investor

LME week is to be held in London whereby the London Metal Exchange holds a series of events and meetings. Moreover, the US dollar index and crude oil prices will have a significant effect on silver and gold prices.

With little practical value, and most supply tied up in central bank vaults, gold is the most speculative commodity of all.

Nonetheless Gold, which is seen an alternative to currency, say investors, has the capacity to drive into tens and thousands of dollars. That’s the kind of appeal gold has.

Oh my GOLD!

Reasons for price rise in Gold

Rise in gold prices can be attributed to various reasons - global crisis, economic growth data from various countries, rising unrest in Syria etc. Gold prices fluctuate on a weekly basis due to data released from various countries which directly affect bullion prices.

Moreover, when the world is under turmoil, everyone wants to be on the safer side and there is no better option than gold which has always proved to be a safe haven asset and has given highest returns compared to other assets in its class. This heavy buying has also been cited as one of the reasons in increase in gold prices.

But in relation to the international prices, the domestic prices of gold have comparatively surged much higher. This is due to the depreciation of the rupee against the dollar.

Falling rupee along with increased duties has peaked gold towards its life time high.

The demand supply gap

As the gold demand/supply gap widens against supply, central banks can help fill the widening supply gap with easy-rate gold leasing to keep the market price of gold from rising too fast, or in a reverse scenario of an imbalanced gap against demand, to raise gold leasing rates to slow flow of gold into the market to keep the market price of gold from falling too fast.

Explanation- Demand for gold is majorly categorized into 3 sections - industrial demand , investment demand and demand for Jewelery. Supply of gold comes from mine production, recycled gold and central banks. Of these, central banks play an important role in filling up the demand supply gap for gold. Rise of any commodity is decided in the basis of its demand vs supply. When the demand for gold is much higher than its supply then the central banks offers gold at easy lending rates in order to increase its supply in the market and fill up the imbalanced gap against demand.

And in a reverse scenario, it can increase the lending rates of gold in order to curb its supply and thus prevent the prices from falling further.

Why people buy in spite of hike in prices?

If we see the Indian markets, gold is a part of its culture. Here the basic mentality of an Indian is that invest your money in GOLD FIRST....other things can wait. And more so, it's an age old tradition of buying gold on auspicious occasions like Akshaya Tritiya, Dhanteras and Diwali. Any marriage in India is incomplete without the purchase of gold- be it any form- jewellery, coins, bars etc.

Moreover, keeping the price movements in mind, many believe that prices of gold will reach new heights. Keeping this hike in mind the find it wise t buy gold even if it's at its life time high.

Region wise demand of gold

As per the World Gold Council, last year was a milestone year for gold as global demand for the yellow metal grew 0.4% to 4,067.1 tons at an estimated value of $205.5 billion -- the highest tonnage level with a value exceeding $200 billion since 1997. The increase was mainly propelled by the investment sector, particularly in India, China and Europe.

In the first quarter of fiscal 2012, gold demand was at 1097.6 tons, a 5% year over year decline. Increase in investment demand was offset by declines in demand for jewelry and in the technology sectors, due to higher prices. Central banks continued to be purchasers of gold, accounting for around 7% of total gold demand, at 80.8 tons.

However, in absolute terms, gold demand in the quarter was valued at $59.7 billion, a 16% jump compared with the first quarter of fiscal 2011. Average gold price in the first quarter stood at $1,690.57. This was 22% above the prior fiscal's quarter. In value terms, all the sectors of gold demand posted growth, barring physical bars and the official sector.

Investment demand posted robust growth in the quarter, particularly led by ETFs and similar products. Gold demand in the technology sector was at 107.7 tons, a 7% decline year-over-year due to higher gold prices, weak consumer demand, higher inventories and the uncertainty in Europe.

Jewelry demand dipped 6% to 519.8 tons due to higher price levels. The 22% higher quarterly average price suggests that jewelry demand is not directly related to price. Value of jewelry demand grew 14% to a record $28.3 billion. China, Russia and Egypt recorded growth, while weakness was witnessed in India, a number of Middle Eastern markets and in Europe.

Jewelry demand in India, otherwise a major consumer of gold, was down 19% and investment demand declined 46%. This was mainly due to a sharp decline in the rupee, which led to higher local prices, rise in import taxes on gold and imposition of excise duty on jewelry in that country. However the excise duty was later withdrawn by the government. Gold in India is currently at an all-time high in rupee terms.

GOLD ALL SET TO SHINE

Last week again, gold reacted to various factors like US jobless claims report, SPDR Gold Trust, Canada Employment report and ECB Interest rates.

News released in the market that European Central Bank was prepared to buy bonds to help the nations facing economic turmoil which led to a rise in gold prices with gold reaching almost an 11 month high of $1796.5 on Thursday.

Investors have been closely eyeing the result of Bank of Japan’s policy meeting which is expected to keep things unchanged for Japan

Another important data for gold market is the US jobless claims report. The report showed an al together different picture of the US economy. Unemployment rate unexpectedly fell to 7.8% in September, down from 8.1%, as a survey of U.S. households showed 873,000 more Americans had jobs compared to a month earlier. January 2009 has witnessed such low unemployment rates.

A bettering economy showed signed of development. Good economic news is good political news which also adds up to good financial news. Hope this reports make the picture brighter for precious metals.

 In Canada, the jobs data was mixed with the unemployment rate rising one-tenth of a point to 7.4 per cent in September even as the economy added 52,100 jobs: five times the number expected.

The Federal Reserve said last month it will purchase USD40 billion of mortgage-backed securities every month until the labor market improves. The labor market has to improve for QE3 or else the FED might have to introduce other stimulus measures.

The labor unrest in South Africa has spread to more mines run by the world’s top platinum producer Anglo American Platinum in a wave of wildcat strike action that has hit the country’s mining sector.

SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings hit a record high of 1333.44 tonnes by Oct. 4. 

Vagueness over Spain’s request for a full scale bail out has also affected the markets. Analysts and market players predict the Spain might go in for a full scale sovereign bail out but Spain’s Prime Minister – Mariano Rajoy denied the same

A bailout would allow the ECB to step in and buy Spanish sovereign debt, which would result in reduced borrowing costs for the debt-strapped nation. But Spain has been reluctant to do so because it may come with conditions on its budget. 

Moreover, gold prices are expected to rise further given the tensions prevailing on the Syria - Turkey border.

With an overvalued currency, tightened credit conditions and the prospect of higher interest rates, the economy could be vulnerable to a further slowdown from the under two per cent pace recorded so far this year 

Meanwhile, in India, Stockists have been buying gold heavily given the rise in demand with the onset of the festive season. And a recent dip in rupee has led to re stocking of inventory by these stockists as they expect a rise in gold prices before Diwali and the beginning of the marriage season

WAIT & WATCH: The mantra for precious metals!

Gold and silver did not show much movement and remained almost stable on Wednesday.

Gold edged up by 0.3% last week and reached an average of $1772.34 which is higher than the last week average of $1749.04. Silver too increased by 1.8% and reached an average of $34.6 compared to last week’s $33.99

Apart from the regular reports like US jobless claims, Euro zone crisis, launch of QE3, Chinese growth data etc, other factors that were responsible for movements in the markets were the US home sales and core durable goods report, the ETP’s report, the Italian bond auction and most importantly the relation between dollar and various currencies.

The Euro and the Australian dollar declined against the US dollar. This could be one of the reasons that could have restrained the recovery of precious metals. The relation between the US dollar and other currencies plays an important role in the movement of gold and silver prices. A further decline of the Euro against the US dollar could pull down the prices of precious metals.

The German Bond Auction (to be held on Thursday) may relieve the market of its bullish sentiments if it is held out successfully.

Reports claim that the ETPs continue to raise their bets on silver as the amount held in ETPs has reached 18,525.76 metric tons which is only 0.6% shy from its record high from last year. This suggests that many bullion traders still have faith in precious metals.

Moreover the comment by the President of Federal Bank of Philadelphia (on the recent decision of the launch of QE3) that it may not help recover the US economy has once again created some doubts in the minds of market players and has thus created a negative impact on precious metals

While the fresh EU turmoil is pressuring the raw commodity sector this week, and the precious metals have chosen to follow, it’s seems that if there is a serious deterioration in the ongoing EU debt crisis, then gold prices would see fresh, strong safe-haven demand surface.

Summing it up, gold and silver will continue to remain more or less stable unless there is some big proclamation regarding the above mentioned reports. The launch of QE3 did have positive effect on precious metals but some constructive data from the other sources together will help boost the prices further. The markets will mainly await the ECB President speech, the US core durable goods report, the home sales report, Final GDP estimate and the jobless claims report.

Plenty in basket – We just need to wait and watch.