-By Mr. Prithviraj Kothari, MD, RSBL (RiddiSiddhi Bullions Ltd.)
Gold acted like a new born baby this year. It showed new movements and new trends which were quite difficult to understand, analyze and justify. But this baby though adopted by many was also abandoned by a handful chunk of people.
Gold that has always stood proud in its category, for the first time in 13 years, it gave negative returns. Moreover, it’s headed for an annual drop of 25 percent. Gold has been in a significant bear market since reaching a record high at $1,910 an ounce in 2011. On April 15, the gold price plunged about 9%—the biggest one-day loss ever for the yellow metal. In its collapse gold bullion lost $705 an ounce or 37% of its value to the recent low at $1,195. Some say the no. '13’ as considered unlucky by many; has proved to be inauspicious for gold too.
The international markets witnessed the following highlights in the year 2013 that were responsible for volatile movement of bullion prices.
- Cyprus Bailout
- Syrian Conflict
- Statement by FED that it may taper its bond buying program by late 2013
- US government shutdown
- US debt ceiling being raised
Throughout the 1st quarter gold was seen in a range of 1554$ an ounce to 1695$ an ounce. Though gold declined to $1554 in February it managed to cross the 1600 mark in March - Thanks to Cyprus. The Cyprus crisis had offered gold a helping hand, after investors had been pulling out of the precious metal
On the other hand, the Indian government hiked duty on gold to 6 per cent from 4 per cent to rectify the current account deficit on January 21, 2013. Gold also saw a booster coming in from US lawmakers that were successful in averting the fiscal cliff at the 12th hour, this too pushed up gold prices.
On Friday, 12th April, Gold witnessed a record drop and for the first time in history it crashed 80 dollars in a single trading day this reaching $1484. Panic selling had triggered this downfall.
Some 158,200 taels of gold bullion (roughly six tonnes) were sold in six auctions held by the State Bank of Vietnam. There was news that as soon as the international markets opened, Merryl Lynch sold 4 million ounces of gold.
Heavy ETF selling was also seen in the markets.Gold dropped further trading at 1385$ at one point of time.Till mid June gold managed to be above the $1400 mark but news about the recovery of the US economy dropped gold prices and it was seen trading at around 1385$.
During mid July the FOMC minutes reviewed that many Fed governors would like to see more signs of improvement in jobs before agreeing to taper.
What came as a turning point for gold was the civil war at Syria. Gold prices rallied above $1430. Meanwhile, in South Africa the National Union of Mineworkers (NUM) has given 48 hours' notice of a strike at South Africa's gold producers. This too affected gold prices.
While in the domestic market, the Indian rupee slipped for the third consecutive day in a row on Wednesday to close at a fresh record low of 68.80 per dollar, as uncertainty over a possible US-led military strike against Syria knocked down Asian equity markets and currencies. This was the biggest ever single day fall for the currency since 1995. But then in September, stepped in Mr. Raghuram Rajan- he was then considered the savior of the depreciating rupee.
The FOMC meet began on 18th September and was over by the 19th. All expectations, rumors, speculations and predictions were finally put to a halt.
Just when India marked the onset of its festive season, the US was heading for a partial shutdown. Though the partial shutdown did not create much impact on gold prices globally, this shutdown along with the debt ceiling will surely have a major impact on bullion prices worldwide. As shutdown entered its second week, there prevailed a lot of uncertainty in the markets.
Finally, in the first week of November, just after Halloween, the Fed stated that it would not taper its bind buying right away as it needs concrete evidence over US economy's growth. Though this should have pushed up the gold prices, completely opposite happened. Gold was down 6.1% in November, the worst performance since June when prices touched a 34-month low of 1180.5$
U.S. Senate leaders finally announce a deal to end a political crisis that had partially shut down the federal government and brought the world's biggest economy close to a debt default that could have threatened global financial calamity. The deal, however, offered only a temporary fix and does not resolve the fundamental issues of spending and deficits.
But what came in as a silver lining in the dark clouds for gold was the demand for gold from China. It finally overtook India as the largest consumer for gold as it imported 131 tonnes of gold in October through Hong Kong.
It is rather the month of December that was considered a deciding factor for gold's fate as the most awaited and much discussed FED meeting concluded on 18th. It is in this meeting that the Fed was supposed to give a final decision as to when the tapering would begin for the final time in 2013. Though many investors believed that tapering would take place in early 2014, The Fed had a surprise package for all. It probably accommodated a bit everyone for Christmas, by announcing a somehow symbolic $10 billion taper to start in January, target to end QE around the end of 2014, but on the other hand promising to keep low rates for a well past time until the unemployment rate would drop below 6.5%. Gold quickly fell to 1215.80, while the S&P 500 rallied close to the all-time high. Gold in the Indian market dropped Rs.1000 per 10 gram late in the evening. The total Gold ETF holdings are currently 57.41 Moz compared to 86.62 Moz at the start of 2013. Total gold ETF holdings are now back at the lowest level since Novemeber, 2013.
The tapering news got along with it a firm belief that the Global economic scenario is improving and we will near the end of recession soon.
Conclusion
Gold has lost its appeal as a safe haven asset. But yes, the market is still divided into two segments. Some who have abandoned gold like the net outflows of ETFs while others who have adopted it with the belief that gold prices will rise and the metal will always serve with a safe haven appeal like the central banks of the world.
I feel, Gold should not be always thought as a short term profit making option, rather it should be thought in terms of grams that would safeguard your future. I always remember my great grandfather saying "don't buy gold to make profits...buy gold because its eternal....it's pure wealth and its enduring and come what may- GOLD WILL ALWAYS STAND BY YOUR SIDE:- This feeling has sunk in so well not only with me but I guess with entire India.
And that's the reason that gold has always been the favorite metal for Indians.
PREDICTIONS 2014
By now everyone would believe hat 2013 has been one of the worst years for gold.
If we take a look at gold's performance over the past decades we see that gold has given highest returns compared to any other asset in its class. I would advise investors, to have patience and just follow one mantra "Buy on Dips"
It's quite difficult to predict gold prices. A trade range can though be noted down. There are a lot of factors that are involved in the making and breaking of gold prices. These factors influence the price of gold and gold is directly or indirectly dependent on them. What we assume that in case there is another eruption of a financial crisis or any new geo political crisis, gold prices may break new highs and continue to rise strongly as a result of the supposed function of gold as a safe haven.
Following will be the key factors that will be responsible for the movement of gold prices in 2014.
- US Debt ceiling
- QE tapering
- Demand for gold from China
- Union Budget 2014 (for the domestic market)
- Finance ministry directives (for the domestic market)
- Mining companies
- Interest rates
- US economic data
Gold is still at the mercy of the dollar. What this means is as volatile as it is with the Fed’s back-and-forth on the possible taper, gold will continue to play off what the dollar does into 2014.
The average base price for gold in 2014 is expected to be 1375$ an ounce. In the domestic market gold is expected to move in a range of Rs.25,000 - Rs.33,000 per 10 gram and the average base price for the same is expected to be around Rs.28,000.
The average base price for Silver is expected to be around $25.00. The average base price for silver is the domestic market would be somewhere around Rs.45,000 per kg and the trade range for silver is expected to be Rs.37,000- Rs.55,000 per kg.
The primary purpose of this blog (Prithviraj Kothari's view on Bullion Markets- MD,RSBL (Riddisiddhi Bullions Ltd.)) is to educate the masses of the current happenings in the Bullion world.
- Previous blog -
"As the year ends does the bull market for gold end too?"
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