IS IT THE END OF THE "GOLDEN" ERA?

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

Now when the whole world was writing about precious metals, the history crash, the further predictions etc I thought it was time to sit back and take a look at the whole scenario.

It was too early to comment as all that was happening was panic. Now that markets have stabilised, I would like to take this up for discussion.

To start off, clearly a lot of psychological damage has been done, as well as the practical damage of margin calls on leveraged positions and collateralised gold, so we should not expect a recovery as quick as the decline

The month of April 2013, will always be remembered in the history of gold as it was a record breaking drop in gold and silver prices in a single trading day. Gold saw its biggest two-day fall in 30 years, crashing to $1,322.06 an ounce as panic selling drove the precious metal’s price further downwards

I think that this correction was bound to happen and it happened here. A correction of 20-25 per cent was witnessed after 11 long years.

One of the main reasons was that Investors showed great concern on issues that European Government may have to follow Cyprus in selling part of their holding. This triggered panic selling thus hitting stop loss. Long positions were shifted to short. There was a negative sentiment that caught the market and it sparked sell off in gold.

Some say that the Fed and BOJ asset purchase led to the collapse of gold prices, some say it was ETF liquidation etc

I think finding 'a' particular reason will not explain the phenomena.

The bullion market shifted direction again as both gold and silver resumed their downward trend that started last week. Both precious metals slightly declined on Wednesday along with other commodities such as oil and leading “risk related currencies” such as Euro and Aussie dollar against the USD.

However, on Thursday gold market revived supports from the weak US economic data. Gold extended gains above $1,400 an ounce on signs that jewellers, investors and store of value buyers of gold are taking advantage of the biggest slump in prices in three decades.

Global demand for physical is very clearly seen in rising premiums being seen internationally. The drop in prices ignited a spate of buying in gold coins and bars, sending premiums for gold bars to multi-month highs throughout Asia. Demand intensified overnight as prices rose over $1,400/oz.

Spot gold started weakly, dropping to $1,385.50 in the Asian sessions, but it soon recovered, breaking above the resistance level of $1,400 to a peak of $1,425.25 per ounce – up for the fourth consecutive day and an increase of 5.5 percent on Monday’s close.

Market participants said there’s been a change in attitude in the gold market since the price break that began April 12. On the physical demand side, there’s been an enormous rush to buy, with news reports of strong demand and rising premiums over spot price for gold in many Asian countries. The U.S. Mint also reported very strong sales for gold coins.

Leading economic indicators and the Philadelphia Fed business survey both came in below forecasts. That bolstered ideas the Federal Reserve should not be backing off on its aggressive monetary easing policies any time soon.

The IMF too forecasted lower world economic growth, in the latest signal that major economies of the world continue to splutter or only see moderate growth.

Central banks are divided on whether gold is cheap enough to increase investment, after the two-day plunge through April 15 wiped $560 billion from the value of reserves. Sri Lanka’s central bank governor said falling prices are an opportunity for nations to raise gold reserves and that the island nation will consider buying more. The Bank of Korea said the plunge isn’t a “big concern” because holding the metal is part of a long-term strategy for diversifying currency reserves.

There is a Group of 20 meeting in Washington, D.C. that began on Thursday. The market place will pay close attention to any proclamations regarding foreign exchange rate, financial and/or economic policies coming out of the confab. 

For India, Decline in bullion prices has boosted domestic demand in the country, the world’s largest gold consuming nation.

As of now Gold is expected to move in the range of $1275- $1550 in the next six months in the international markets. Till the prices do not cross $1550, the market seems to be weak for gold.

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


- Previous blog -
"Record breaking drop for gold and silver in a single day "
http://riddisiddhibullionsltd.blogspot.in/2013/04/record-breaking-drop-for-gold-and.html