RSBL Gold Silver Bars/Coins

Wednesday, 31 October 2012

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.

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