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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Dear sir,
ReplyDeleteThanks for the article as it gives us some guidance on why the two precious metals have been down for the last few months. As an avid investor in physical gold and silver (purchases mainly done through bullionindia), and a follower of articles written by many gold/silver lovers abraod, how much is the effect of paper gold and silver (though paper silver is not available in India) could be reason why physical gold and silver are going down? I love silver more than gold but am seen as a crazy investor of the useless metal. I believe silver (and gold for that matter) would make a great rebounce in the future, catching many by surprise. But am sure it will go down further before the resurrection. Till then I would take advantage of the low prices. Hope to read more about your articles and guidance on gold/silver. Thanks for the support.
Dear Reader,
DeleteThank you so much for your appreciation.
Not only Gold and Silver act as Safe Haven assets where you may invest your funds without any worries, but also they are commodities. Price rise and fall are part and parcel of such commodities.
I will never rule out the fact that prices can go down still further, but this is market after all. It weighs a commodity as per the need of the hour.
Like I have said in the previous blog, I do feel that Silver has much more potential than Gold as Silver has its use in Industry too.
Over the months, I have made it a point to educate readers that invest in Precious metals with the power of averaging. None of the precious metals will last forever after all it can be mined only to the limit it is available on Earth.