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