CRITICAL WEEK FOR GOLD : RSBL

By Mr. Prithviraj Kothari, MD, RSBL

Recently, gold is being pulled apart by two significant forces. On one side where the escalating tensions in the Middle East are igniting gold prices a December rate hike is pulling them down on the other side.

Off late, there has been some excitement regarding gold as tensions escalate in Middle East. Turkey had downed a Russian Military Jet, accusing violation of air space, which Russia denied. Russia warned Turkey over serious retaliation and now sending an advanced air defense system to protect its air crafts. NATO members are scratching their heads over how Russia might retaliate.

Gold made some gains overnight on a slight softening in the dollar and heightened geopolitical tensions after Turkey shot down a Russian warplane but these proved short-lived.

Gold prices edged lower on Wednesday morning in London on growing expectations of a December interest-rate rise by the US Federal Reserve, which continued to weigh on sentiment.

The spot gold price traded at $1,073.70/1,074 per ounce, down $1.50 on Tuesday’s close. 

Markets were focused on the economic data that was released in the US ahead of the Thanksgiving holidays on Thursday. The reports included the core durable goods orders, unemployment claims, the core PCE price index, durable goods orders, personal spending and new home sales.

In spite of the release of these reports, market volatility had been low on Thursday due to Thanksgiving holiday in the US.

The metal is trading at its lowest levels since February 2010 as investors weigh the prospects of higher US interest rates after data pointed to a strengthening economy. With gold typically seen as a haven asset, demand for the metal is falling on the prospect of higher returns in US securities.

Moreover gold will lose its appeal post a rate hike. Raising rates “increases the opportunity cost of holding gold. Gold has zero yields — it actually costs you money to hold it — so there’s more incentive to put your money into a yield-earning dollar investment and hence the demand for gold will decline.

Currently market participants currently see a 78 percent chance of a US rate lift-off by year-end, according to the CME Group Fed Watch – a tool to gauge the market’s view of an interest rate hike. 

If the rate hike expectations are met, the US dollar is likely to gain further. Gold tends to move inversely to the greenback. A stronger dollar pressures all commodities since it makes them more expensive in other currencies, plus some investors are less likely to buy gold as an alternative currency when the greenback is muscular.

Thanksgiving may be over in the U.S., but traders will still have a full plate next week.

Fed Meeting- The US Federal Reserve will meet on December 15-16 to decide if will lift interest rates from near-zero levels for the first time in almost a decade.

Moreover, markers will watch Yellen’s comments to see if she offers any further clues on what to expect in the way of monetary policy when the Federal Open Market Committee meets. Yellen is scheduled to appear before the Economic Club of Washington on Wednesday.

Major reports- Other major U.S. reports next week include :-

• The Chicago Purchasing Managers Index on Monday
• Institute for Supply Management manufacturing PMI Tuesday  
• The ADP private-sector jobs and Fed Beige Book report Wednesday 
• Non-manufacturing index and weekly jobless claims on Thursday.

The robustness of the November employemnt  report may put the final nail in the rate raise coffin, one way or another. Employment will have to be very weak for the Fed not to go ahead with rate liftoff.

ECB- the European Central Bank will meet next Thursday and expectations are for it to expand its asset purchase program and cutting its deposit rate. ECB will announce further loosening of monetary policy while the Fed starts tightening. The ECB holds a monetary-policy meeting. Expectations have been growing for the central bank to increase its asset-purchase program known as quantitative easing, particularly after ECB President Mario Draghi said last week that “we will do what we must” to raise inflation to an acceptable level.

ECB monetary policy and US NFP report for November scheduled next week is happening close to a key support area and is very critical for gold.  As a result, traders will be on the lookout for the November report next Friday.

The primary purpose of this blog by Prithviraj Kothari - MD, RSBL, is to educate the masses of the current happenings in the Bullion world.

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GOLD FAILS TO ATTRACT SAFE HAVEN BUYING: RSBL

 By Mr. Prithviraj Kothari, MD, RSBL

The week began with a lot of geo political uncertainty and these rising tensions were expected to ignite gold prices.

But geopolitical tensions  took more of a backseat, with the minutes from the FOMC’s latest policy meeting set to be scrutinized later in the week for clues on the timing of a rate rises in the US.

The gold price had risen to a one-week high on Monday following Friday’s terrorist attacks in Paris, which fuelled safe-haven demand.

On Friday, 13 November, a coordinated terrorist plot in Paris led to over 100 deaths and hundreds injured. The Islamic State boasted and claimed responsibility for the deadly attack, which follows recent attacks by the organization in Lebanon and a suspected bombing of a Russian airliner.

French President Francis Hollande responded by launching a massive airstrike on the ISIS stronghold of Raqqa in Syria.

In tumultuous periods, gold harvests safe-haven appeal as investors seek physical assets like gold versus other investments like bonds or equities. 

However, Gold failed to attract safe-haven buying as a strong dollar offset geopolitical concerns. The dollar placed a cap on the market as it traded at a 7-month high.

Gold received only a small safe-haven lift from the terrorist attacks over the weekend in Paris and Beirut. It rose to $1,097 on Monday but those gains faded away as a strengthening dollar ended the rally. The dollar remained well-supported by broad expectations that the first US interest rate hike in nearly a decade could likely be initiated by the US Federal Reserve in December.

Gold prices dropped to a 5.5-year low on Tuesday, pressured in part by rallying U.S. and world stock markets early this week. 

U.S. economic data released Tuesday was a mixed bag thus leaving the markets confused.

• A heavy data day, US consumer price index month-over-month for October rose  0.2percent, in-line with expectations.
• The core CPI also increased 0.2 percent.
• The capacity utilization rate at 77.5 percent was as forecast.
• US industrial production over the same period dipped 0.2 percent, below the forecast 0.1 percent.
• The NAHB housing market index for November was 62, just missing the estimate of 64.
• The spot gold price was last at $1,081/1,081.30 per ounce, down $2.40 on Monday’s close.

While in the US, market players still expect the Federal Reserve to raise rates for the first time in nearly a decade at the mid-December Federal Open Market Committee (FOMC); Fed chairwoman Janet Yellen has argued for an increase in the Federal Funds rate before the end of the year, citing worries of prolonged periods of cheap capital and its long-term effects on the economy.

On Wednesday, investors’ focus shifted to the minutes from the FOMC’s October policy meeting.

Spot gold was last at $1,075.1/1,075.4 per ounce, up $3.50 on the Wednesday closing level.

Seventy percent of market participants believed the Fed will raise rates next month, according to the CME Group Fed Watch.

The minutes released showed that most members of the Federal Open Market Committee at the October meeting said the conditions for a rate rise could be met by December. A minority, however, said the data may not support a hike and suggested the Fed may need to add monetary stimulus if the economy unexpectedly slows.

The release of the minutes from the October FOMC meeting suggested that  it “could well be” time to raise short-term interest rates at the December policy meeting and as a result the committee chose to alter the wording of their policy statement to ensure their options were open for a move next month.

Gold prices climbed on Thursday morning in London as the dollar fell back even though a majority of US Federal Reserve members believe a December rate hike is becoming more appropriate.

Gold prices climbed on Friday morning in London, boosted by short-covering and fresh buying despite the October FOMC minutes suggesting the Fed will lift interest rates from December. But later in the day gold prices declined.

With the US essentially closed for half the week for Thanksgiving, it’s a quieter week for news and gold may continue to consolidate. All the potentially market impacting fundamental news is packed into Tuesday and Wednesday morning. The key report is U.S. GDP which could potentially impact gold through the U.S. dollar as it could impact speculation on a FOMC rate hike next month.

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INTEREST RATE HIKE TO HAPPEN SOON?: RSBL

By Mr. Prithviraj Kothari, MD,RSBL

The downtrend in gold continues, with the metal charting its seventh straight session loss and expectations for the same trend continue for the coming week.

The gold price was steady on Friday morning, making time ahead of the much-awaited US non-farm payrolls data, set for release later in the day.

Gold was confined to a narrow trading range, before the release of the monthly US jobs report.

Once the report was out, gold prices plummeted as the market continued its recent downtrend.

Gold fell below $1,100 on Friday after US jobs data surprised with the upside, raising the chance that the Federal Reserve will increase interest rates by the end of the year.

Spot gold was last at $1,087.40/1,087.60 per ounce, down $17 on Thursday’s close. At its intraday low of $1,085.40, it was at its cheapest since August 7.

After the U.S. labor market revealed its fastest pace of job gains this year, gold, on Friday, witnessed its lowest level since early August.

Treasuries tumbled and the dollar strengthened, as the report alleviated concerns of a hiring slowdown after weaker payroll advances cooled in August and September. Such improvement means a go-ahead signal for the Fed officials, who last month held out the possibility of a December rate increase.

Since this report was considered as one of the key influential factors for a rate hike, let’s have a detailed look at the highlights:

•  The US economy added 271,000 jobs in October, while the unemployment rate fell to 5.0 percent
• The government revised the September jobs gain down to 137,000 from the previously reported 142,000
• The August gain was revised up to 153,000 from 136,000. Over the prior 12 months, employment growth had averaged 230,000 per month
•   Meanwhile, the unemployment rate dipped to a seven-year low of 5.0% in October, from the 5.1% level of the previous month
• Consensus expectations compiled by various news organizations called for non-farm payrolls to rise by between 177,000 and 190,000 in October, while the unemployment rate was expected to hold at 5.1%.
• In October, average hourly earnings for all employees on private non-farm payrolls rose by 9 cents to $25.20. The average workweek for all employees on private nonfarm payrolls remained at 34.5 hours in October.
• The Labor Department said job gains occurred in professional and business services, health care, retail trade, food services and drinking places, and construction sectors.
• Employment in professional and business services increased by 78,000 in October, while healthcare added 45,000 jobs and retail trade added 44,000.
• Employment in mining continued to trend downwards in October with a 5,000 decline. The industry has shed 109,000 jobs since reaching a recent employment peak in December 2014, the government said
• The civilian labor force participation rate was unchanged at 62.4% in October, following a decline of 0.2 percentage point in September, the Labor Department said. The number of persons employed part-time for economic reasons (sometimes referred to as involuntary part-time workers) edged down by 269,000 to 5.8 million in October, the government added.
• In additional data from this morning, average hourly earnings month-over-month rose 0.4 percent, above consensus at 0.2 percent.

The 271,000 gain in payrolls was the biggest this year and exceeded all estimates in a Bloomberg survey of economists, a Labor Department report showed Friday.

The key highlight of the report was the non-farm payrolls number. It jumped 271,000 in October, far more than the 183,000 consensus expectations and was a clear negative for gold prices.

A better-than-expected payroll and hourly earnings number caused the dollar index to spike, which further pushed the gold prices down.

The surprisingly strong U.S. payrolls has had a big impact on FOMC rate hike expectations, sparking a new rally phase for the U.S. dollar against many currencies, including gold.

The marketplace deemed the report as positive and has prompted strong selling in the gold market, as investors do not see a 2015 rate hike as far-fetched.  

Federal Reserve chairwoman Janet Yellen has stated that 4.9 percent is the Fed’s estimation for full employment and reiterated before the report that she would prefer to raise rates by December.

Earlier this week, Yellen said a December rate hike was a “live possibility” and the policy-board would raise the federal funds rate if the data was sufficient.

This has intensified the speculation for a December rate rise and has pressured gold prices lower, with the shift in safe-haven buying probably adding further downside.

The Fed hasn’t lifted interest rates since 2006, but dovish members see low inflation as sufficient reasoning to hold-off until 2016.

Traders watch the monthly U.S. jobs report most closely as they try to gauge whether the Federal Open Market Committee might hike U.S. interest rates yet this year. One more jobs report, for November, is scheduled for release before policy-makers meet again in mid-December, which will once again be a crucial factor for raising interest rates in 2015.

The primary purpose of this blog by Prithviraj Kothari - MD, RSBL, is to educate the masses of the current happenings in the Bullion world.

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