GOLD AND SILVER ON A SWING

by Mr. Prithviraj Kothari, MD, RSBL

Last year investors sent bullion tumbling by the most in three decades which they kept dumping the metal recently.  But gold has once again become a valuable commodity. Demand for gold is increasing and prices are defying bearish forecasts.

Gold has proved that the bearish sentiment in the market was indeed just a thought and gold's performance this year has proved it. 

US economy is on the path of recovery and it is clearly visible from the recent government data that was released. Prices are speculated to retreat by the end of the year and inflation concerns along with pockets of unrest are sending investors into gold as a safe haven.

Violence spread in the Ukraine and Iraq and the Fed's reservations that it will keep interest rates near record lowed has kept gold prices high.

The gold and silver market heated up last week after they didn’t do much in the previous week. The minutes of the FOMC meeting may have partly contributed to the rally of precious metals by the end of last week: The minutes revealed the FOMC may keep the interest rates for a long time until the inflation start to pick up towards the Fed’s target of 2%. This dovish tone may have sparked another rally of gold and silver. 

During last week, the price of gold increased by 1.27%; the average price reached $1,326.88/t. oz which was 0.21% above last week’s average. 

The FOMC dovish policy is getting gold and silver back and is boosting up their prices too.

Moreover, if the Chinese economy doesn't show much progress, it will play a secondary role in impacting the bullion market. But on the other hand if the US economy moves on the path of recovery then it will pull up equities and curb down the rally of gold and silver.

Short term concerns over inflation and the ongoing geopolitical turmoil in many parts of the world has been the main reason behind pushing gold prices high. 

Gold was once again on the see saw this week. As the week began, gold fell sharply. On Monday, gold witnessed on profit taking after reaching the highest level since March in the previous week and ahead of Federal Reserve Chair Janet Yellen’s congressional testimony. 

There was a rally in gold prices on Thursday, over the tragic plane crash incident and a pickup in hostilities in the Israeli-Hamas conflict.

On Thursday, The Malaysian Airlines Boeing 777 flying from Amsterdam to Kuala Lumpur was "blown out of the sky", by a ground launched missile killing nearly 300 people aboard and sharply raising the stakes in a conflict between Kiev and pro-Moscow rebels that has set Russia and the West at daggers drawn.

The blame game , cranked up global pressure which created a way for a local conflict.

Ukraine's state security chief accused two Russian military intelligence officers of involvement with pro-Russian rebels in the downing of a Malaysian airliner on Thursday, releasing chilling testimony of what he called an "inhuman crime."

This incident kept gold over $1300. Gold for August delivery, the most actively traded contract, jumped $7.50 or 0.6 percent to close at $1,309.40 an ounce on the Comex division of the New York Mercantile Exchange on Friday. Gold for August delivery scaled an intraday high of $1,325.50 and a low of $1,305.00 an ounce.

But by Friday, gold pulled back from the knee-jerk reaction. The safe-haven benefits for gold faded on Friday, with the precious metal dropping in electronic trading, as a lack of physical follow-through made that upward move unsustainable.

Moreover, SPDR Gold Trust, the world's largest gold backed exchange traded fund, said its holdings fell 2.69 tonnes to 803.34 tonnes on Thursday.

But the yellow metal is still down nearly 2 per cent for the week, following a six week winning line over fears as Portugal financial crisis faded and investors worry about a sooner than expected hike in US interest rates

Even if U.S. rates don’t change before the second quarter of next year, the upside potential for gold over the medium term will remain capped and we may see some price pressure in the back of speculative selling, 

Next week’s economic reports are fairly light, with consumer price index data and existing home sales due out Tuesday, new home sales on Thursday and durable goods orders on Friday.

Still, gold markets will continue to watch geopolitical events, especially ahead of the weekend, which could produce more headlines out of Russia and Ukraine over the downed jet and the Middle East, where Israel has launched a ground offensive in Gaza.

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1292-$1328 per ounce	Rs.27,500-Rs.29,000 per 10 gram
SILVER	$20.45-$21.70 per ounce	Rs.44,000-Rs. 47,000 per kg

The primary purpose of this article by Mr. Prithviraj Kothari is to educate the masses of the current happenings in the Bullion world.
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