DOLLAR DRAWING DIRECTIONS FOR GOLD

by Mr. Prithviraj Kothari, MD, RSBL

                                                     

During the financial crisis in September 2008, gold price rose $50 in a single trading day on 18th September. Investors adapted gold as they perceived this asset to be a safe haven in terms of liquidity and security.  This day was marked in history as it was after February 1980 that gold had made such a huge jump in one single day. in 1979 and 1980, the world witnessed global uncertainty. At that time the key influencers for gold were the Russian invasion of Afghanistan and the Iranian hostage crisis. Most of these factors were geopolitical. 

Even today gold has been hovering around the geo political uncertainties. In fact during 1980 it as just geo political tension but today its lots more. Terrorism along with financial uncertainties have had a great impact on gold prices.

The key driver of the gold price at the moment is perceived to be the relative strength of the US dollar, yet the US dollar is only stronger compared to the other main currencies because these currencies, such as the Euro, are weak due to their economies remaining weak and their money supplies having been debased.

Gold is falling on concerns over strengthening US economy and the stronger dollar. Dollar gained ahead of the data to be released next week which includes the monthly employment numbers that the Fed will be watching. Currently it appears that while the rest of the world is in the doldrums, The US economy is performing comparatively well. The Dollar index hit a high of 85.68 and closed at 85.64 for the week on strong economic data from the US.

U.S. economy has grown in fastest pace in 2 and a half years in the second quarter. The Commerce department raised its estimate of growth in gross domestic product to a 4.6% annual rate from the 4.2% pace reported last month.

During the week, gold traded near the lowest level in almost nine months as the dollar rose to a four-year high amid prospects of higher borrowing costs as the U.S economy improves. 

Though September is considered as one the best performing months for gold, this year the yellow metal has declined 5.3 percent in this month itself. After dropping to $1207.04 on September 25, it has touched the lowest level since 2nd January. 

Gold prices continued their downhill ride to touch a low of $1,207/ounce last week. However, they bounced from that point and closed the week at $1,218/ounce, up from $1,215.7/ounce in the previous week. The fear of gold  miners cutting down on production if prices plunge below $1,200 is holding prices. The cost of production of major gold miners is about $1,350/ounce now, according to estimates of analysts.

Despite the news of US-led strikes against militants in Syria, gold prices didn't move up much as expected as metal continues to loose its safe haven appeal to investors. The US SPDR Gold Trust, the largest gold-backed exchange-traded fund, saw its holdings are at 772.25 tonnes on Friday - the lowest since December 2008.

Gold is also heading towards its first quarterly loss this year as strong data coming from US has made the metal weak. Data last week showed the world’s largest economy grew the most since 2011 in the second quarter. Consumer spending accounts for about 70 percent of gross domestic product. In the US, data showed that sale of new homes surged in August and hit its highest level in more than six years. Also, the final estimate of the second quarter (April-June) GDP that was released on Friday showed that the US economy expanded by 4.6 per cent.

Hence I still feel that The dollar remains the driver of gold direction.

Though geopolitical worries may not give that push or support to gold prices, there are chances that gold may witnessed recovery and not fall significantly from current levels. 

with the mining costs of most gold producers at $1,330-1,350/ounce, they can shut mines and stop new explorations. In such a case, supply will fall and curtail prices from slipping lower.

Moreover, if the dollar continues to rally, there may soon come a point when it will turn a concern for exporters in the country.

Demand has always been a supportive factor for Gold prices and it shall continue to do so in the near future:

World's largest bullion consumer- China- has been importing more gold in September than in the previous month due to demand from retailers who are stocking up gold for the upcoming National Day Holiday. From 1st October, Chinese markets will closed for a week and during this period retail sales are expected to rise. Data on Thursday showed that China's net gold imports from Hong Kong rose in August from a three year low in July. Moreover, imports are expected to remain high due to seasonal demand

Apart from this , one interesting trend that we witnessed was the rising demand for gold from India. After nearly 5 months, we saw some positive news coming from the bullion markets in India as buyers appear to be taking advantage of the relatively low gold prices. Gold demand has picked up across the country, according to traders, despite it being the `shradh' period, which many in India consider inauspicious for buying not just gold, but even other commodities such as cars, there has been some buying reported across retail outlets. As we all know that active market players usually buy at dips. But this time apart from the market player we also saw retail demand for gold rising. 

Russia added to its Gold holdings for a fifth month in a row in August, while Kazakhstan raised its holdings by nearly 800,000 ounces, data from the International Monetary Fund showed on Thursday.

Summing it up, I would like to say that the Middle East is a powder keg that seems likely to explode. The U.S. and western nations have taken a hard stance against an increasingly powerful Russia. This is effecting an already fragile Euro zone and other economies.

Gold has protected wealth throughout history from financial crises and war. We believe it will continue to do so in the coming years.

TRADE RANGE:

METAL	INTERNATIONAL price	DOMESTIC price
GOLD	$1206- $1237 an ounce	Rs.26,000-Rs.27,500 per 10 gm
SILVER	$17.15- $18.00 an ounce	Rs. 38,500 - Rs. 40,000 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.

- Previous blog -

"Investors losing interest in gold over interest rate rise"

http://riddisiddhibullionsltd.blogspot.in/2014/09/investors-losing-interest-in-gold-over.html

INVESTORS LOSING INTEREST IN GOLD OVER INTEREST RATE RISE

by Mr. Prithviraj Kothari, MD, RSBL

Last week we saw that the dollar denominated all the markets especially gold. It was the strengthening dollar that was responsible for the plunge in gold prices. 

This week it was even more worse. Precious metals tumbled down and the losses coincided with the recovery of USD against leading currencies such as Euro and Yen and the rally of U.S equities. 

The main market movers were the US Dollar and the Chinese economy. 

Though other markets have also seen volatility, the impact on the precious metals markets has been severe. Equities have been on a bull run but commodities have consistently been on the downside and have been hit with sliding prices and withdrawals by investors, squeezing profit opportunities for funds and traders. 

Gold closed at $1205 in 2013 and picked up well in 2014, rising to a high of $1380 in March. But post March, gold prices plummeted and have witnessed a loss of 5.5 per cent so far in September.

Gold prices declined for the third straight week after the Fed raised it approximate for a key lending rate even as policy makers confirmed an assurance to keep borrowing costs close to zero percent for a substantial time.

The chief reason for the recent weakness is the US Federal Reserve's projection for where official interest rates will be heading. The reason why the market has been so reactive to the interest rate rise is that an increase in interest rates and bond yields would raise the opportunity cost of holding gold. Currently gold has is not strong and has been giving negative returns. The strong co relations between gold and US bond yields will further reduce gold prices. Moreover, higher rates also tempts investors to shift to riskier assets like stocks that have been considerable returns. Moreover it continued to set records in 2014.

On Thursday, gold settled at its lowest closing price since the end of December, pressured by the dollar’s move higher after the Federal Reserve meeting on Wednesday

Spot gold was down 0.5 percent on Friday and among other precious metals, silver was down 2.5 percent to $18.01 an ounce. It touched $17.81, its lowest since August 2010.

On Friday the price of gold fell again, reaching a fresh 2014 low following three weeks of straight selling on the back of a strong dollar and expectations of a rise in US interest rates

Globally, we have witnessed financial uncertainty from 2009-2012. This had compelled investors to adopt gold as gold has always been considered a safe haven asset in turmoil.

The Fed now expects that short-term interest rates will be back to normal levels of around 3.75% by the end of 2017.

With the US Federal Reserve announcing a further $10 billion reduction in its monthly purchases, leaving the programme on course to be shuttered next month, it has also made clear that record low interest rates would be around for at least a few more months.

China followed by India are the worlds largest consumers of gold. But this year, demand for gold from both countries faded. Demand in China, which overtook India to become the top consumer of the metal last year, fell by 22 per cent to 351 tonnes in the first half of the year as the country's economic growth slows down, after reaching record levels in 2013. Jewellery fabrication in India, the world's second largest gold consumer, declined by 18 per cent to 296 tonnes in the first half on lower official imports after the hike in imports duty last year.

We still await some rise in demand from both countries because July, August and September are typically months for strong months of Gold performance months as buying from Asia increases – particularly due to upcoming festivals and wedding season in India.

A good gauge of demand is buyers' willingness to pay a premium over the international price.

Gold imports travelling through Shanghai's Pudong International Airport surged by 200 percent month on month since June as the Shanghai Gold Exchange (SGE) announces plans to allow foreign investment into China's gold market.

Some modest signs of increased demand in the physical gold market after a dramatic slump in Asia this year, have emerged.

To conclude, I think that precious metals are more likely to suffer tougher times if the dollar stays strong and if positive data continues to flow in from US. Well if it happens otherwise then gold may witness a bullish run.

WEEKLY TRADE RANGE-

METAL	INTERNATIONAL price	DOMESTIC price
GOLD	$1206 - $1256 AN OUNCE	RS. 26,200 - RS. 27,500 PER 10 GM
SILVER	$1750 - $1825 AN OUNCE	RS.39,000 - RS. 41,000 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.

- Previous blog - "Denominating Dollar"

http://www.riddisiddhibullionsltd.blogspot.in/2014/09/denominating-dollar.html

DENOMINATING DOLLAR

by Mr. Prithviraj Kothari, MD, RSBL

Over the fortnight gold has witnessed a severe decline in prices. The first week kicked off with a plunge in gold prices and the same continued this week too. Historically September month has been the best performing month for gold, however this year it kicked off on a negative role as we saw that gold prices have declined by 3%. On Friday, a low of $1225.90 was set when lower than expected Chinese industrial production for the month of August was released. A strengthening US dollar and the expected change to the FOMC's policy have played an important role in this decline in gold prices. Gold has been destabilized by the lethal combination of a stronger US dollar and a supple equities. Adding to it is the lack of inflation in the major economies. 

Let's have a look at major factors which could continue to play negative on gold:

Euro tumbled to multi year lows last week after ECB slashed interest rate by 0.1% across the board as inflation and growth remained a concern.

The surging US dollar has been acting as a bearish factor for the precious metals. The dollar index was at a 14 month high on Friday and was steadily on track to post its ninth consecutive week of gains. A strong US data and a fall in Euro has strengthened the dollar even further and raised expectations that the US Federal Reserve would soon raise interest rates.

On the geopolitics front, U.S. President Obama said Wednesday evening that the U.S. military will use more air strikes against the ISIS terrorists, but will put no troops on the ground in the Middle East. That news was not unexpected and had little markets impact. The Russia- Ukraine cease fire was holding up and the Ukrainian President on Wednesday quoted that most Russian troops have pulled away from the Russia- Ukraine border. 

With geopolitical concerns seems to be easing out, there seems to be little support for gold.

Moreover, Investment demand in Gold has been showing no improvement.  Weak investor sentiment was reflected in the SPDR Gold trust that saw holdings drop 0.32 tonnes to 788.40 tonnes on Friday. Hedge funds and money managers cut bullish futures and option bets in Gold to their lowest in nearly three months, the Commodity Futures Commission said on Friday.

The demand for gold globally has not picked that well this year. Asian countries aren't witnessing the same patterns of buying when the rate was the same in the previous years. Moreover in the past, such price falls would have attracted bargain hunters. Not now.

The 11-year rally in gold prices created a perception that they will only go up. This price fall has broken that conviction, Now people are diversifying their Investments. This trend will increase in the coming years but expectations of a tightening in super-loose U.S. monetary policy would weigh on gold.

Although, gold prices have been declining since last year, the metal does remain an attractive investment in China. Demand for gold in China will grow steadily as the middle class expands and the Yuan is further internationalized which will require an increase in gold reserves.

Looking ahead, the near term outlook for Gold and silver looks towards downside in international dollar terms. This is the direct impact of improving US economy and looming interest rate rises which will continue to discourage investor buying and in fact lead to selling. I do feel that slowly and steadily the rates will be hiked depending on the economy's growth. This will provide the breather for both the metals.


Traders and investors are already looking ahead to next week, and a more robust batch of economic data points, highlighted by the meeting of the U.S. Federal Reserve’s Open Market Committee (FOMC). Its one of the most important meeting where it would debate on  potential overhaul of its guidance on interest rates and would decide on how QE3 can be exited. Next week is also the much-anticipated referendum on Scotland’s independence from the U.K

TRADE RANGE:

METAL	INTERNATIONAL price	DOMESTIC price
GOLD	$1202 - $1252.70  an ounce	Rs.26,200 - Rs.27,500  per 10 gm
SILVER	$18.20 - $19.70  an ounce	Rs.39,500- Rs.43,500  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.

- Previous blog - "A Booster Month For Gold"

http://riddisiddhibullionsltd.blogspot.in/2014/09/a-booster-month-for-gold.html

A BOOSTER MONTH FOR GOLD?

by Mr. Prithviraj Kothari, MD, RSBL

Gold has established a support level at $1275 since March and prices have risen post this level. 

But, during the second half of March gold fell heavily from resistance around $1400 back down to a several week low near support at $1275.

As 2014 began, gold moved very well for the initial months towards a six month high near $1400 and has now plunged to levels closer to $1300.

As news of the escalating tensions in Middle East and Ukraine gained momentum, gold gained 5.4 per cent year due to rise in demand for this safe haven asset.

After hovering at around $1290 gold has plunged sharply over the last week and has broken through the support at $1275. 

It rallied a day ago however ran into further resistance at $1275 before falling lower to a four month low around $1258.  

Though gold has always been the markets favourite metal during uncertainties, but this time bullion investors continue to worry over strong U.S. economic data and its impact on the dollar.

This week we saw gold falling to its lowest level in three months, on Friday before it recovered modestly.

On Tuesday, Gold witnessed its greatest drop this week as the market broke through recent support at the $1,270 area.

Gold was  unable to capitalize on the news of the ECB’s interest rate cut and QE program as the euro weakness offset any support gold would have received from the new liquidity programs.

AS tensions lingered over Ukraine and a weak dollar forced bargain hunting, we saw gold prices rising on Wednesday after prices earlier fell to a two and a half month low.

The yellow metal was under pressure after the Russian President drew plans for a ceasefire but then regained its prices when the Ukraine prime minister later dismissed Russia's proposal.

The metal is under pressure as the euro languished near a 14-month low versus the dollar on Friday, struggling to regain its footing after the European Central Bank delivered a fresh round of stimulus and promised even more if needed.

Gold was standing firm above the $1270 level in Thursday as it was impacted by a weaker Euro and surging equities after the European Central Bank cut interest rates to record lows which was counteracted by lower than expected U.S. jobs data. 

The main refinancing rate was cut to 0.05 per cent from 0,,15 per cent and the ECB lowered the rate on bank overnight deposits to -0.20 percent. 

But what surprised the market was Fridays U.S. jobs data that gave gold a push thus helping it to return to modest levels overnight. 

The U.S. Labor Department said the economy created 142,000 jobs in August, far below expectations for a figure of over 200,000. The unemployment rate fell to 6.1%, a six-year low. The average pace of job creation this year is 215,000, up from 194,000 in 2014. 

Gold rose from an 11-week low, after U.S. employers added the fewest jobs this year, adding some pressure on the Federal Reserve to maintain lower interest rates.

Initially data reports had stated the US economy was back on the path of recovery but Fridays number were a bit disappointing .

A stronger greenback is a setback for dollar denominated gold as it makes the yellow metal more expensive for users of other currencies.

 Gold traders are likely to keep an eye on currency moves next week after the euro fell to a 14-month low versus the dollar Thursday, following the surprising move by the European Central Bank to cut interest rates and embark on a quantitative easing program.

Traders will also extend a warm welcome to the month of September as it has historically been the best performing month for gold giving an average return of 2.16 per cent since 1969.

A spike in retail demand in India is another reason for the typical bump.

We hope this month the be a booster for gold.

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

- Previous blog -

"Bull v/s Bear"

http://riddisiddhibullionsltd.blogspot.in/2014/08/bull-vs-bear.html