GOOD NEWS TURNS TO BE BAD FOR GOLD

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

                  As we said, the "bull" in the Bullion seems to be fading away.

Gold seems to be losing its glitter as it's no longer appealing to the common investor.

Gold has dropped almost $200 an ounce in the past 10 days.

Gold reached $1179- it’s lowest since 2010. In fact gold is headed for a 24 per cent drop for the second quarter. This is considered to be the biggest quarterly drop for gold since 1968.

All this was triggered due to short selling and good economic data coming in from the US. However, Gold has declined sharply since Fed Chairman Ben Bernanke said last week the U.S. central bank plans to start scaling back its $85 billion monthly bond purchases in the next few months if the U.S. economy grows more quickly than anticipated and the jobless rate falls rapidly. That would tend to drive up interest rates, making gold less attractive as a safe haven for funds in a low-rate environment. 

One of the prime reasons suspected was the panic selling, as everyone tried to exit as they were in deep fear as to how low can gold go.

However, Friday was welcomed on a different trading note for gold. Though it dropped during the day, later in the evening it bounced back. The main reason for this was that Friday witnessed a daily close, a weekly close, a monthly close and a quarterly close for gold contracts. This resulted in short covering. Also 1180-1155 was seen as a good bottom for gold to bounce back. It turned back from 1179 and crossed 1200 thus reaching 1228 by 11 pm (IST).

A record breaking event that we saw in the past week was the depreciation of the rupee in the Indian market. Rupee was valued at its life time low of 61.15 against the dollar. If this depreciation would not have occurred then gold would have been somewhere around 22,000 keeping in mind the drop in gold prices in the international markets. But a weak rupee curtailed the prices thus creating a support for gold at 24,800. 

Platinum remained under pressure, although it finds good support around the $1,320. I feel platinum might appear a more promising prospect, given their relatively better looking fundamentals, mostly on the supply-side due to concerns over strike activity in South Africa. However, these fears may have been somewhat reduced by the civil and reasonable wage settlement at Aquarius earlier this week—the first platinum miner to settle in South Africa’s 2013 wage negotiation season. However, whether this negotiation and settlement sets a precedent for the rest of the sector remains to be seen, especially since these negotiations were not marred by NUM-AMCU rivalry, as might be the case at other miners.

Gold support is at $1,205 and $1,170. Resistance is at $1,265 and $1,300. Silver support is at $18.18 and $17.70, resistance is at $19.42 and $20.16.

In the domestic market, gold is expected to move in the range of INR 25,500 on the lower side and 27,500 on the upper side

"The primary purpose of this blog by Prithviraj Kothari - MD, RSBL(RiddiSiddhi Bullions Ltd.) is to educate the masses of the current happenings in the Bullion world."

-Previous Blog: 

"Has The Bull Period For Gold Ended?" : http://riddisiddhibullionsltd.blogspot.in/2013/06/has-bull-period-for-gold-ended.html

HAS THE BULL PERIOD FOR GOLD ENDED?

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

This entire week gold was dancing to the tunes of the Fed's stimulus plan.

On Wednesday, June 19, Federal Reserve Chairman Ben S. Bernanke stated that the central bank may start curbing stimulus. He further said that the central bank may start reducing the $85 billion in monthly debt buying in 2013 and end the program in 2014. Only if US economic conditions this step would be taken. Once this statement was out, gold plunged down. The market was taken aback by shock that triggered moves in a number of markets Thursday, including weaker equities, a stronger dollar, higher Treasury yields and gold saw its lowest level since 2011. Silver was the hardest hit, which fell from 21.33 to as low as 19.39. 

However, all this comes on an assumption that the U.S. economy continues to improve.

An improvement in the US economy means that- 

Ø  The Q4 GDP in the US must reach 2.3-2.6 percent

Ø  The unemployment rate must drop below 7.3- 7.2 from the current 7.6 percent

Ø  The inflation rate must be well below 2 per cent.

If this happens then gold will no more enjoy the "safe haven metal" status that it currently has.

Investors have already started losing faith in the metal as gold heads for its first annual drop since 2000. Some even say this statement from the Fed clearly gives a signal that the bull period for gold has ended.

The main reason that gold touched its life time high in 2011 was the launch of QE and if this stimulus plan is curbed then gold will plunge terribly.

The premium at the Shanghai Exchange for physical gained 10 USD to trade as high as 30 USD over the international price. Trading volume at the time of writing was 22.2 tons on the two physical contracts, far away from the 57.6 tons seen on the record day in April of this year. One reason for the lower volume could be that the physical market is still tight as refineries have back logs. Furthermore import quotas might have been reached by some participants and last but not least the tight cash liquidity among Chinese banks these days.  

Apart from the current statement released, traders and investors await the reports that are due this week which will justify the curtailment of the stimulus plans.

The reports to be watched for are -

Ø  Durable goods Report

Ø  Consumer Confidence report

Ø  New Home Sales report

Ø  Gross Domestic Product

Ø  Weekly jobless claims and personal income and spending

Moreover, Treasury yields and the amount of bargain hunting that emerges after this week’s sell-off will also be closely watched by gold traders next week.

While in the currency market, we saw depreciation of the rupee, with rupee touching an all time low of Rs. 60 against the dollar.

Weakness in gold initially persisted into Friday’s overnight session, but Asia-Pacific traders said Chinese buying helped the market steady. By Friday Mid night gold was up around 2 dollars reaching 1292$. 

Though gold has shown nominal signs of recovery, the basket of suspense will open next week for this yellow metal.

Gold support is at is at $1,290 and $1,232. Resistance is at $1,300 and $1,350. Silver support is at $19.26 and $18.53, resistance is at $21.30 and $22.60.

"The primary purpose of this blog by Prithviraj Kothari - MD, RSBL(RiddiSiddhi Bullions Ltd.) is to educate the masses of the current happenings in the Bullion world."

~ Previous Blog:
 "Searching For The Bull In The 'BULL'ION" :
 http://riddisiddhibullionsltd.blogspot.in/2013/06/searching-for-bull-in-bullion.html

SEARCHING FOR THE BULL IN THE "BULL"ION

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

                                               

Till the last day of the week everything was under the green light for gold. It reached a 1 week high above $1419 per ounce on Thursday. Research reveals that rise was seen due to the expectations by traders just ahead of the US data release on Friday.

It was being anticipated that US would not be adding much jobs which in turn would not compel the FED to discontinue its stimulus measures. Hence Gold prices would rise even further.

As economic condition in US and the global economy would worsen and central banks would print more money to spur growth, analysts say that gold will shoot up to new highs and send shocking waves the way it did when it crashed in April.

Central banks around the world are looking at gold bullion as an alternative to the currencies they hold in their reserves. It is well documented in these pages how major central banks like the ones from Russia and Turkey continue to buy gold bullion. This too was a reason to support the rising gold prices. But what happened on Thursday came as a complete shock to the bullion market.

The US reports showed signs of growth and recovery. The country added 1,75,000 jobs in May compared to just 1,49,000 in April. The Fed stimulus plan is based manly on the basis of the Labour report.  The employment number is better than expected and it suggests that the Fed bond buying may end in some time.

The addition of jobs reduced hopes that the Fed will continue with its stimulus plan and this reduced gold’s appeal as an inflation hedge tool Gold fell back through $1400 Friday as European stock markets erased earlier losses. GOLD and silver prices whipped sharply Friday lunchtime in London, as there was a slight rise in jobless rate to 7.6 per cent 

Gold fell around 2 per cent on Friday, thus making it the biggest one day drop in three weeks. During the trading day on Friday, Spot gold was down 2.1 per cent at 1383.96 an ounce, having hit a low of 1377.39 during the same day

Moreover, SPDR gold trust ETF holdings continue to tumble: the ETF’s amount of gold held declined by 5.8% during May and by 25% since the beginning of 2013. If gold holdings will continue to dwindle, they could indicate the demand for gold as an investment continues to fall. 

While in India, gold imports reached an all time high. For the first time ever, 135-160 tonnes of gold were imported during the month of May. The highest in any month till date. This compelled the government to raise the import duty yet again to 8 per cent so as to curb imports.

As per my view, the government’s decision is good. Imports are at an all time high. Though this decision of the government will curb imports but it will not have an effect on the demand. In a population of 120 crore where gold is the most preferred investment mode, the government should undertake other policies to curb imports, there is 25000 tonnes of house hold gold lying idle in Indian homes. This gold should be got into the markets through gold deposit and gold lending and borrowing schemes. 

ETF loans are also a good option. But in spite of constant mentioning, these schemes are consuming time for execution due to complications.

Gold is expected to move in the range of Rs. 26500 to Rs. 28500 per 10g in the coming week.

"The primary purpose of this blog by Prithviraj Kothari - MD, RSBL(RiddiSiddhi Bullions Ltd.) is to educate the masses of the current happenings in the Bullion world."

-Previous Blog:
"Comments On Gold Duty Hike Of RBI":
 http://riddisiddhibullionsltd.blogspot.in/2013/06/gold-duty-hike.html

Comments on Gold Duty Hike of RBI!

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

                

          

Finance Minister is back with a new change in Gold policy, announcing another attempt to curb Gold imports by increasing the import duty from 6% to 8% with immediate effect, will have a loud impact on the Bullion sector. Increase of 2% at current rate of $1400 per ounce is 28 USD per ounce. To be clear, with this duty hike a difference of 9.24 percent between the international and domestic price of the yellow metal is evident.

The headline should however have had a negative psychological impact and it is surprising that Gold wasn’t sold harder yesterday, which might again point to the fact that traders are now cautious on the next set of US data.

Taxes included in the price is 8.24% Customs Duty + taxes(Educational Cess etc) + 1% VAT = 9.24% while  1% TCS is applicable on Cash Sale, will incentivize a rise in illegal channels and malicious activities with respect to importing gold and related products like jewellery etc., in the country. To give you a snapshot, 1 kilo of smuggled Gold into India, where the bar has a size smaller than a Samsung S4 (approx), would yield approx 4160 USD i.e. INR 2,37,000 (approx as per current rate of 1 USD = INR 57), or 3 times a yearly income per capita [GDP (nominal) - 2012 estimate  - Total $1.947 trillion (10th), Per capita - $1,592 (140th), Source: http://en.wikipedia.org/wiki/India]. Every Indian going on a holiday abroad might be tempted to carry some Gold back (in prescribed limits as per Government norms), as the tax saving could help paying part of the trip. While 1 kilo of Gold is not affordable to most of Indians, organized illegal channels could finance porters and collect the Gold at their return to the country.

In turn it will lead to an increase in unemployment among the skilled artisans of the country (around 1-2 million people depend on this sector to earn their livelihood) as well the businesses of local jewelers across the country. The government should harness the existing reserve of gold in our country rather than turning towards imports and implementing this alarming hike on customs duty. Also other opportunities for revenue generation, like increasing exports should be explored by the government of India. Hiking the duty on imports will in no way, curtail the absolute demand (can reduce it), as the precious metal has always been regarded as one of the best investment options for social security.


"The primary purpose of this blog by Prithviraj Kothari - MD, RSBL(RiddiSiddhi Bullions Ltd.) is to educate the masses of the current happenings in the Bullion world."

- Previous Blog:
"See Saw Yet Again" :
 http://riddisiddhibullionsltd.blogspot.in/2013/06/see-sawyet-again.html

SEE SAW.....YET AGAIN!

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

There were mixed or rather confused sentiments in the precious metals market as we saw gold rising consecutively for 3 days till Thursday but again dropping almost 1.6 per cent on Friday (its biggest one day loss in two weeks)

The prices of precious metals changed direction and bounced back on Tuesday. Their recovery coincided with the decline in equity markets and the rally of leading risk related currencies such as Euro and Aussie dollar

The main reason for gold recovery till Thursday was the US Economic Data that was released. There was an unexpected Increase in the jobless claims and higher pending home sales too increased less than expected. Jobless claims rose by 10k to reach 354k during the previous week and the US GDP for the first quarter of 2013 expanded by 2.4 per cent - which disappointed many as it was slightly lower than the previous estimate. It gave signals that its recovery is still not too close. This boosted the prospects that The Federal Reserve will not pull back its monetary stimulus plan

Prolonged accommodative monetary policies favour gold as low interest rates encourage investors to put money into the non-interest-bearing assets. The little to no improvement in the U.S economy according to these reports may have contributed to the depreciation of the USD against leading currencies and the rally of precious metals

Gold was up 1.98%, thus trading at 1417.81 an ounce post the data release on Thursday. The yellow metal remains supported by weak US GDP numbers and positive Asian growth numbers.

However, Friday being the last day of the month we saw selling pressure in the markets.

A few data was released on Friday too. There was again optimism created in the market as regards the recovery of the US economy. Some stronger-than-expected U.S. economic data released Friday morning has boosted the U.S. dollar index and in turn put selling pressure into the gold market. US Data released on Friday showed low inflation and improving consumer confidence. This dampened investor interest, thus dropping bullion prices.

Bullions marked sharp losses for a second consecutive month as we has also witnessed the great gold crash in April

Moreover, there was no sell off seen in ETF's on Friday. Holdings in the SDPR Gold Trust remain unchanged at 1013.15 tonnes on Thursday, after rising for the first time in three weeks on Wednesday

As we are exiting May, volatility of precious metals is expected to rise as gold and silver contracts are expiring.

Gold support is at $1,390 and $1,373. Resistance is at $1,427 and $1,440. Silver support is at $22.20 and $21.80, resistance is at $23.10 and $23.54.


"The primary purpose of this blog by Prithviraj Kothari - MD, RSBL(RiddiSiddhi Bullions Ltd.) is to educate the masses of the current happenings in the Bullion world."

- Previous Blog-
"Fed's Policy Statement- Predictable I feel?" :
 http://riddisiddhibullionsltd.blogspot.in/2013/05/feds-policy-statements-predictable-i.html