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