TOO MANY ECONOMIES PUTTING PRESSURE ON GOLD?

- Mr. Prithviraj Kothari, MD, RSBL

The ones who are constantly in touch with the world markets especially precious metals know that the driving force behind gold and the main reason for its volatility between 2008-2011 has been the:

• FOMC’s policy

• Falling long term treasuries rates 

• Higher risk of economic slowdown 

• Fear of inflation. 

Initially all eyes would be glued to the US markets as any one step from this government would create volatility for gold. But nowadays, apart from the US markets it’s the Japanese, Chinese and Euro market that also played an influential role for gold. The economic indicators from these economies have also influenced gold prices to quite some extent.

This week the markets remained calm over the long Thanksgiving holiday, and there was not much volatility for gold and silver in international markets. Interestingly however the gold forwards have tightened significantly in spite of weak physical demand and ETF outflows, down 20k to 51.96 million ounces.

Apart from this the decision on Swiss referendum on gold holdings is also being long waited for. Looking back, Switzerland was the last country in the world to leave the gold standard in 1999 and may be the first to take a major step to becoming a gold-backed currency. One fifth of Switzerland’s 1040 tonnes of gold reserves are in the vaults of The Bank of England while a third are deposited in the Canadian Central Bank.

Under the ‘Save Our Swiss Gold’ initiative the SNB will have to hold at least a fifth of its assets in gold within five years. The bank will also be required to repatriate all Swiss gold held abroad and be banned from selling any of its holdings in future. Speculation that Switzerland could vote in favor of a motion to raise its gold reserves had strengthened prices. But finally on Sunday, a No Vote was passed which could create some ripples in the markets.

During the week, recent strong U.S. data had fueled talks that the Federal Reserve could soon raise interest rates, depressing gold. But the contradictory reports released on Wednesday showed domestic personal spending grew slightly less than forecast in October, while U.S. jobless claims rose to their highest since September and new orders for U.S.made capital goods fell for a second month in October Thus pushing gold prices up. 

Apart from the Swiss and US, data that came in as a surprise package for gold was the easing of curbs from the Indian government. In a move that is likely to bring cheers to traders as well as customers, India eased the restrictions on gold imports by withdrawing the 80:20 schemes.

Under the 80:20 norm, put in place in August 2013 to curb high gold inflows that was widening the current account deficit, at least 20 per cent of the imported gold had to be mandatory exported before bringing in new lots. With this move by RBI, they expected that gold will be kept back at home and thus improve supplies for the domestic market which will further bring gold prices down. Though the policy supported their idea of arresting Current account deficit but in turn created unprecedented growth of illegal channels that support Gold imported in the country. 

This move by RBI is to acknowledge the fact the CAD has reduced and even the Oil price has declined by almost 30% by what it was two months ago. I feel this is a really good move by the government. This will reduce the cost of Gold and procedural issues that the companies were facing with regards to Gold imports. 

Though gold showed mixed trends this week, there are players in the market who still believe that the sentiment for gold is bullish over the longer time frame. 

Following are a few reasons for this belief-

• Slowing of the ETF sales and outflow

• Seasonal demand from India after the onset of festivals and marriages India has witnessed a 100 tonne plus season consumption of gold. 

• Rising demand for gold is expected from China ahead of the Chinese New Year where gold is purchased heavily in the Chinese 

• With executive board member Yves Mersch commenting that gold buying could be part of the asset-purchase program, expectations and, therefore, demand may rise due to potential ECB investment in the yellow metal.

So once again it’s the bull v/s the bear market for gold and would be too early to comment. Now we need to wait for the market to further react to the easing of the 80:20 schemes and the Swiss Referendum. 

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 - "Lots in Basket For Gold This Week"
http://riddisiddhibullionsltd.blogspot.in/2014/11/lots-in-basket-for-gold-in-this-week.html

LOTS IN BASKET FOR GOLD IN THIS WEEK

by Mr. Prithviraj Kothari, MD, RSBL

The week was volatile for gold. Gold acted weak on Monday but later picked momentum by the end of the week, ultimately closing the week higher and notching a third straight week of gains.

On Monday, gold prices ended slightly lower and pulled back from the positive gains witnessed last Friday. A stronger US dollar weakened the gold and silver markets. But later in the week gold managed to rise above $1200 even though the dollar gained. 

George Gero, vice president with RBC Capital Markets Global Futures, said gold attracted some buying when it rebounded over $1,200. Few other news that moved the market:

• China: In order to fuel the slow moving Chinese economy,  China’s central bank reduced its interest rate. Chinese economic data in the past has been disappointing. This move by the China central bank comes as a bullish factor for gold. 

• European Central bank: The statement released by ECB president Mario Draghi made it very clear that the ECB will use all means within the ECB’s mandate to return the EU to its inflation target, including implementing quantitative easing and this he said will happen soon. 

• Gold Buying:  European and Russian central banks were looking to acquire more gold.The Dutch Central Bank says it has recently shipped 122.5 tons of gold worth around 4 billion Euros ($5 billion) from safekeeping in New York back to its headquarters in Amsterdam. With this move the Dutch Central Bank has joined the bandwagon along with other banks that are keeping a larger share of their gold supply in their own country. This boosts demand for gold and gives a positive outlook for the yellow metal. 

Gold futures climbed to a two-week high topping $1,200 an ounce after Russia added to reserves, fueling speculation that a rebound in demand for bars, coins and jewellery will help stem this year’s drop.

The gold market has a lot in basket to be seen in the next week. 

• There is a major meeting of the Organisation of Petroleum Exporting Countries, inflation data out of the euro zone, and a major holiday in the U.S. to keep volatility high.
• Swiss Referendum- The market may also see some last-minute positioning ahead of the Nov. 30 Swiss gold referendum. Traders are also already discussing next week’s Swiss referendum which would require the Swiss National Bank to hold 20% of its assets in gold. A Swiss poll on Wednesday showed the majority of voters were not in favour of the measure. This news was credited in part with weakness in the gold market Wednesday. This can be a game-changer worldwide. If the Swiss franc stops falling and starts rising because of this then more people will understand that a strong currency is good not a weak currency.
• November Germany IFO business climate 
• The November U.S. consumer confidence index 
• the October U.S. Core PCE price index and personal spending 
• the Euro zone private sector loans, 
• the October Japan inflation data, 
• Later in the week, analysts said they’ll watch to see what euro zone inflation data shows. Inflation has remained tame, which doesn't support gold, analysts said, and euro zone inflation has been particularly soft.

TRADE RANGE

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1180-$1215 per ounce	Rs.26,250-Rs.27,000  per 10gm
SILVER	$16.00- $17.50 per ounce	Rs.35,000- Rs.39,000 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 -

"The Dollar Is Being Watched Closely" - http://riddisiddhibullionsltd.blogspot.in/2014/11/the-dollar-is-being-watched-closely.html

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THE DOLLAR IS BEING WATCHED CLOSELY

by Mr. Prithviraj Kothari, MD, RSBL

Gold's long term appeal continues to remain clouded by doubt. The dollar is getting stronger and the US economy is on the forefront and traders believe that interest rates will rise faster which weighs on gold as they lift the opportunity cost of holding non-yielding assets.

Till Thursday, gold price remained in a tight trading range. Precious metals sliced back early gains on Thursday after the lower than expected jobs number were released. Unemployment claims climbed 290000 more than the estimated 282,000 and Jolts jobs opening disappointed at 4.74 million against the expected 4.81 million.

The WGC released its Gold demand Trends report for Q3 and it showed that gold demand has been lying low along with the declining demand for jeweller, falling investment demand for bars and coins and reducing central bank purchases.

For the past few days gold has been hovering around $1159.20. But lately, gold has stabilised. After hitting its weakest level of the year till date on November 7.

But on Friday gold got the big push after a sudden weakening of the US dollar . Gold surged 2.5 percent on Friday to just shy of $1,200 an ounce.

Bullion secured more that $40 to a two -week high at $1,193.34 in New York after dropping more than 1 percent in early trade to test the $1,145 level, where strong support was seen twice in the last four sessions, triggering pre-weekend short covering.

Now that the dollar has been moving back and forth and everybody is watching the dollar very closely.

The dollar lately has hit a two-year high against the euro and seven-year high against the Japanese yen, fuelled by diverging interest-rate outlooks.

There are expectations that the US monetary policy will tighten next year as it is considered to be a stronger economy than Japan or the Euro zone. Which further dictates the fact the US dollar will strengthen  as precious metals often move inversely to the U.S currency, it means that they are bound to decline. 

Gold is often bought as an alternative currency when the dollar weakens, and vice-versa, while a muscular dollar also makes all commodities more expensive in other currencies and thus can hurt demand.

Next week a number of key economic indicators are lined and all investors will be closely watching over these. 

Monday- Industrial production and the New York Federal Reserve’s Empire State manufacturing index

Tuesday-  The producer price index 

Wednesday-  Housing and the Federal Open Market Committee releases minutes of its last meeting.

Thursday-  Jobless claims, the consumer price index, existing home sales and Philadelphia Fed manufacturing survey.

Moreover on Wednesday one of the key influential factors will the upcoming US economy data which will be a deciding factor for the Fed to decide as to when it is likely to increase the interest rates.

Apart from the key economic indicators traders will also we keeping an eye on physical demand for gold and the Swiss refendrum.

Demand -China and India are the world’s two largest gold-consuming nations. The Indian wedding season will primarily witness gold buying and the Chinese too stock up the metal ahead of the country’s New Year festivities.

Swiss referendum- Swiss gold referendum is scheduled for Nov. 30. In this referendum the Swiss voters will decide whether the Swiss National Bank would have to hold at least 20% of its assets in the precious metal. This would open doors for more demand for gold as the central bank would have to accumulate much more gold, adding to the requirement side of the equation. Also, the referendum asks voters if the SNB should be banned from selling gold and whether all of its gold reserves should be held in Switzerland.

With the Dollar Index at a four-year high, the U.S. stocks reaching new highs, disinflation occurring in Europe and Asia, and commodity prices plunging, the gold prices have a hard time rallying. 

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 -

"Is Gold Being Completely Controlled By The Dollar?"

http://riddisiddhibullionsltd.blogspot.in/2014/11/is-gold-being-completely-controlled-by.html

IS GOLD BEING COMPLETELY CONTROLLED BY THE DOLLAR?

by Mr. Prithviraj Kothari, MD, RSBL

Gold is being pressurised on multiple fronts-

• Equities
• U.S Dollar
• Chinese Demand for Gold
• European Union
• Japanese Bank

The equities markets is yet another reason that continues to pressurise gold. The stock market continues to look poised for another run higher into new high territory.  

Moreover investors have been more confident about the equities market as compared to gold and this has prolonged the ongoing lack of interest in gold and precious metals.

Apart from equities, The US dollar index too has been mounting pressure on gold. 

Dollar is at multi-year highs and does not appear headed for a reversal anytime soon. Ongoing deflationary pressures in the Euro zone along with economic struggles in Japan could potentially keep the greenback well-supported for some time. 

Gold has been dancing to the tunes of the U.S dollar and there is a big expectation that the U.S. economy will continue to grow and that will further boost the dollar. The notion of higher rates and economic strength is driving the dollar higher and gold lower. 

Surge in the dollar, in which gold is priced, has knocked the metal in recent days through key chart support at $1,180 an ounce -- the lowest level hit during last year's 28 percent plunge -- and $1,155 to its lowest since early 2010 at $1,137.40.

Initially $1150 was considered a good support level for gold but now that gold has crossed this level too,  technical analysts have said a test of the $1,000 level could be on the cards after a break of support at $1,155, a retracement level of its rally to record highs in 2011.

Moreover, robust demand for gold from China has been raising concerns amongst analysts and investors. It has been marked that China, the leading gold consumer of the world, usually buy lot of jewellery, bars and coins at dips. 

Chinese gold buyers, who in the past often took advantage of falling prices as a cheap way of buying into the yellow precious metal, are still biding their time. But this year demand from this country has also been low.

On Wednesday, gold touched the lowest since April 23, 2010. Gold sank about 2 percent on Wednesday to its lowest since mid-2010, potentially opening the way for a fall to $1,000 as a surging U.S. dollar weakened the investment case for non-yielding bullion.

Moreover,  the divergence between the U.S. and economies including the European Union and Japan is driving gains for the dollar. 

Gold futures fell, capping the longest slump since May 2013, as the dollar rally eroded the appeal of the precious metal as an alternative investment.

Gold prices ended the U.S. day session narrowly mixed Thursday and not far above this week’s 4.5-year lows. Trading was quieter ahead of Friday morning’s important U.S. jobs report.  Once the report was out and the key indicators were not as per expectations , precious metals rebounded. The spot gold price was last $8 higher at $1147.90/ $1,1468 an ounce in Thursdays close after spiking up to $15850 with the dollar last at 1.2374 against the euro.

The metal has lost around $100 an ounce over the past week, regenerating memories of a stunning two-day drop in 2013 that started a huge wave of divestment and an annual drop in gold prices after 12 consecutive years. 

Silver was down 3.6 percent at $15.43 , paring losses after hitting $15.13, its lowest since mid-2010.

On Thursday, spot gold prices gained after the US jobs data was out. Spot gold was $8 higher at $1147.90/1148.60 per ounce. The US jobs data stated that the US added just 214,000 jobs in October. This was down from 248,000 in September and also below the predicted 235,000. This gave some support to gold that been witnessing a tumble since quite some time now.

Next week brings more attention to euro zone and Chinese economic data, and the results may serve to underscore the monetary policy divergence between the U.S. and the rest of the world.

The would result in strengthening of the dollar thus further putting pressure on gold which would act completely opposite to gold price movements on Friday.

Moreover, several European countries will release their first third-quarter gross domestic product data, and China will release reports on industrial production growth, producer price index and export data.

Even as China Japan and the Euro zone shows that their economy has been growing as much slow pace and they need easy monetary policies, next week there will more outlook on policy divergence with the Federal Reserve needing to decide on the interest rate hike which many analysts believe wont come in March

While the longer-term trend remains down, gold will likely not go straight down. A short covering and/or relief rally will likely be soon in the coming weeks and gold could possibly test the breakdown level of $1183 before potentially heading lower again.

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 -

"Fed Sets The Rules For Gold"

http://riddisiddhibullionsltd.blogspot.in/2014/11/fed-sets-rules-for-gold.html

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FED SETS THE RULES FOR GOLD

by Mr. Prithviraj Kothari, MD, RSBL

Since December 2008 to June 2011, gold rose 70 % as the Fed bought debt and held borrowing costs near zero percent. 

Last year being the worst performing year for gold, as prices slumped 28 per cent as the markets had expected that the central bank would taper its monthly stimulus program which was the main reason for the spark rise in gold in 2011. 

After spending much of the month bouncing off a triple-bottom low around $1,180 made on Oct. 6, and previously in December and June 2013, gold prices turned weaker and spent the last week and a half drifting lower.  

The U.S. Federal Reserve had dismissed financial market volatility, a slowdown in Europe and a weak inflation outlook as factors that might undercut progress towards its unemployment and inflation goals.

The hawkish comments and the strong economic data dulled gold’s appeal as a hedge. This continued to put pressure on gold. 

Post FOMC, gold dropped more than $20. The market recouped some losses edging back up to $1215, but early London were aggressive sellers, pressuring the market another $20 lower to a low of $1196.50.

Moreover, on Wednesday, The Fed ended its monthly bond purchase program and dropped a characterization of U.S. labour market slack as "significant" in a show of confidence in the economy's prospects. As the Federal Reserve ended its asset purchase program amidst signs of a growing and improving US economy, gold lost its appeal as a safe haven asset and demand to won gold declined. 

Gold is 0.6 % lower in October after losing 6.2 % last month, and the metal during the last session erased the year’s advance as Dollar Spot Index rose to a three-week high. Gold traded USD 1160.85 while Silver and Platinum tested respective support levels of 15.80 and 1220. Gold support for the short term is expected at $1150.

Apart from this, there were few other reasons responsible for the crash in gold and silver prices.

Central Bank Interest Rate - The central bank, which has held its key rate at zero to 0.25 percent since 2008, this week cited an improving job market in deciding to end bond buying, while maintaining a commitment to keep rates low for a considerable time. It also said inflation is running below its 2 percent target.

SDPR Gold Trust- Reflecting bearish sentiment, SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings fell 0.16 percent to 741.20 tons on Thursday, the least since Oct. 2008.

US Data- Precious metals cratered, hit by a double-whammy of the rather hawkish Fed policy statement, coupled with a stronger-than-expected US GDP report. Fed officials this week cited an improving job market in deciding to end bond-buying, while maintaining a commitment to keep interest rates low for a considerable time. 

Dollar- Gold and silver were hit hard after the dollar rose to a near four-week high against a basket of major currencies on Friday, Reuters reported. The greenback got a boost from strong US gross domestic product data and the Bank of Japan’s surprise move to expand its massive monetary easing that weakened the yen.

Bond Buying Program- Gold was languishing near a three-week low on Thursday after the U.S. Federal Reserve ended its bond-buying stimulus program and expressed confidence in the economic recovery, dimming bullion's safe-haven appeal.

Lack Of Support From Asian markets- Gold failed to get any support from the Asian physical markets, a factor that could likely push it to further lows. Physical demand usually provides a floor to dropping prices.

China's factory activity unexpectedly fell to a five month low in October as firms fought slowing orders and rising costs in the slow moving economy.

Buyers in top consumer China failed to emerge despite the drop below $1,200. Gold of 99.99 percent purity on the Shanghai Gold Exchange - the main platform for physical trades in the country - sank as much as 3.1 percent to 230.05 Yuan per gram ($1,172.35 an ounce), the lowest level this year, Bloomberg reported. Volumes tumbled to a one-month low on Friday.

    

For the coming week, gold is expected to be influenced by any comments coming in from the ECB and also any important data cropping from the October U.S nonfarm payroll report. Following Thursdays GDP growth reports news, the Federal Reserve is more upbeat on the labour markets and the Federal Open Market Committee meeting to be held on Wednesday expects a strong data report. This may make the bearish sentiments strong for gold.

TRADE RANGE

METAL	INTERNATIONAL Gold/Silver price range	DOMESTIC Gold/Silver price range
GOLD	$1150 - $1200  an ounce	Rs.25,500 - Rs.26,750  per 10gm
SILVER	$15.00 - $17.00  an ounce	Rs.34,000 - Rs.37,500  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 - "Gold Once Again Surrenders In Front Of Gold"

http://riddisiddhibullionsltd.blogspot.in/2014/10/gold-once-again-surrenders-in-front-of.html