IS GOLD SET TO ENTER THE FIRST BEAR MARKET SINCE 2008?

-By Mr. Prithviraj Kothari, MD, RSBL (RiddiSiddhi Bullions Ltd.)

There is a strong debate in the bullion market as to whether gold will enter its first bear market since 2008 as we see the world economy is improving or will it rally?

Some investors see gold plunging to $1400 and some see it shooting to $1800.

But most investors and traders are under the perception that gold is all set to enter the bear market as the US economy shows signs of global recovery.

The main driver behind gold’s weakness this year has been the focus on global growth and that’s meant rotation out of defensive assets like gold.

Bullion slipped this year after 12 straight annual gains as Federal Reserve policy makers debated the pace of stimulus. Gold hit a 10-month low below $1,540 an ounce on Thursday as the dollar strengthened ahead of a statement by European Central Bank chief Mario Draghi, after the bank left rates on hold as expected at its latest policy meeting.

Spot gold fell as low as $1,539.74 an ounce, its lowest since May 30, and stood at $1,546.90  

Gold is down 7.4 percent this year as global equities trade about 2 percent below a more than four-year high. Bullion is set for the biggest weekly drop in seven months and is nearing a bear market even as the Bank of Japan yesterday increased bond purchases and European Central Bank President Mario Draghi warned that he sees risks to Europe’s recovery.

Gold slipped in on mounting confidence that the global economy is strengthening and as investors awaited U.S. jobs data. Silver was near its lowest since July.

The entire market was expecting a good payroll farms data and a low unemployment rate compared to the last report. News of recovery of the US economy pushed gold further.

However, on Friday, when the data was released, it was a completely opposite picture.

The U.S. job-creation engine sputtered in March as employers hired fewer workers than expected and a shrinking labor force helped push the unemployment rate down to the lowest in four years.

Payrolls grew by 88,000, the smallest gain in nine months and less than the most-pessimistic forecast in a Bloomberg survey, after a revised 268,000 February increase, Labour Department data showed . The jobless rate fell to 7.6 percent from 7.7 percent.

The report followed a string of disappointing data this week on activity in the US manufacturing and services sectors and on private-sector hiring, raising concern the recent rally in equities has outrun economic fundamentals.

Considering that the great economic slowdown has still not shifted to the path of recovery, gold and silver once again came in to the spotlight. The negative data report released on Friday, pushed up gold prices further.

As far the Asian markets are considered, India awaits the beginning of the festive season next week and Chinese markets too will open up after a long holiday. Gold prices will further move upwards as we see strong demand for gold in the Asian markets. Weddings will start in India, the world's biggest buyer of gold, and continue till early June. Festivals like Gudi Padwa, Akshaya Tritiya, Baisakhi etc are lined up too. 

Consumers, investors and traders have started entering the market at this dip and I too fell that it is a wise decision to do so.


“The primary purpose of this blog by Prithviraj Kothari - MD, RSBL, is to educate the masses of the current happenings in the Bullion world.”


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" Is it time to adopt gold or abandon it??"
http://riddisiddhibullionsltd.blogspot.in/2013/03/is-it-time-to-adopt-gold-or-abandon-it.html