GOLD STABILISES AMIDST UNCERTAINTIES

While when gold was just about to continue to maintain its 3 month high last week, there was a sudden pull back and gold prices moved lower by the end of the week.

Gold steadied on Friday, but remained below the week's three-month top as the U.S. dollar and Treasury yields came off their highs after the currency initially jumped on U.S. President Donald Trump's promise of a major tax announcement.

Gold was being pushed and pulled amidst various factors that played key roles in influencing gold prices-

Interest Rate - Gold slid on Thursday from a three-month high in the previous session after strong U.S. economic data pointed to a robust economy, increasing the possibility that the Federal Reserve will raise U.S. interest rates.
U.S. economic data has also strengthened talk that the Federal Reserve would press ahead with U.S. interest rate hikes sooner rather than later.
Gold is highly sensitive to rising U.S. interest rates which increases the opportunity cost of holding non-yielding bullion while boosting the dollar  in which it is priced.

Dollar and Data - U.S. economic data also underpinned the dollar. Initial jobless claims unexpectedly dropped last week to a nearly 43-year low, while inventories at wholesalers surged in December for a second straight month. U.S. import prices rose more than expected in January.
The data showing rising U.S. wholesale inventories and an unexpectedly low number of Americans filing for unemployment benefits further pushed up the dollar and U.S. bond yields.                        
A stronger dollar makes gold more expensive for holders of other currencies, while higher yields increase the opportunity cost of holding non-yielding bullion. Higher interest rates would lift yields further.
           
Tax Announcement - Donald Trump plans to announce the most ambitious tax reform plan since the Reagan era in the next few weeks, the White House said.
On Thursday, sending stock prices and the dollar higher on hopes leading to a cut in corporate tax rates.

French Elections - Investors are concerned about the strong showing in the French presidential race of far-right candidate Marine Le Pen, who has promised to take France out of the euro zone and to hold a referendum on European Union membership.

Gold held near 3-month highs on Thursday as political risks from elections in Europe and worries over U.S. President Donald Trump's policies buoyed safe haven demand for the bullion.

While gold was stabilised by Friday. It was still amongst the favourites for investors. Many of them are being bullish for gold – Reasons being :

• Controversy over U.S. President Donald Trump's temporary travel ban on people from seven Muslim-majority countries has recently boosted gold as a safe-haven asset.
• Further geo-political uncertainties, increasing hostilities in the Ukraine, Greek bailouts, French elections, Iran-U.S. sabre-rattling have supported gold prices and drawn interest from investors who seek support in safe haven assets.
• Investors' bullish stance on gold is reinforced by an increase in net longs by speculators and a rise in holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund. (SPDR holdings rose 0.68 percent to 832.58 tonnes on Wednesday from Tuesday, rising for a sixth straight session.)

Increasing uncertainties has increased the demand for gold as a hedge. Amidst all this, gold prices are expected to rise till Mid Feb. Once January CPI data is released, it will give an idea about the possibility of a rate hike in March which will then be a deciding factor in the movement of gold prices.

Push vs Pull for GOLD

Last week, gold clocked its largest weekly gain in some seven months. The move came higher as investors flocked to gold, which is often viewed as a safe-haven investment in times of uncertainty.
Last Thursday, markets kept a close watch in the Jobs report that was due on Friday. Apart from the Job report there were many other highlighted events in the week-

Jobs Data- U.S. job growth surged more than expected in January as construction firms and retailers ramped up hiring, but wages barely rose, handing the administration under President Donald Trump, both a head start and a challenge as it seeks to boost the economy.

This report pushed gold prices higher and the sentiments have been continued for this week too.
The gold price climbed on Monday to its highest in nearly three months with investor interest in bullion improving thanks to a subdued dollar and political worries about the US and Europe.
Spot gold was up 0.6% at $1,226.91 during trading hours, having earlier touched $1,230.14, a level last reached on November 17.

Political Uncertainty- Majorly, the current uncertainty prevailing in the US is being driven further by President Donald Trump’s policies, the most controversial of which is a temporary ban on immigrants from seven Muslim countries.

Moreover, Data on Friday showed U.S. wage growth slowed, reducing the odds of Federal Reserve rate increases this year and sending bullion to the biggest weekly gain since June. Uncertainty about Trump’s fiscal-stimulus policies and his administration’s spats with traditional allies helped push hedge funds’ bullish bets on gold to the most in almost two months.

Dollar - The dollar’s value against a basket of currencies has fallen nearly 4% since January 3. That was partly on expectations that the US central bank will wait to see what happens on the political and economic fronts after Friday’s monthly jobs report showed that wages barely rose. "Gold’s solid showing so far this year ... is mostly attributable to a weaker dollar and last week’s standoffish Federal Reserve statement with regard to when it would next move on rates. Trump has also criticized the strength of the dollar, which has pushed the greenback lower. A weaker dollar is good for gold as gold is denominated in U.S. dollars.

French politics - Elections in the Netherlands, France and Germany this year are also adding to jitters. Apart from the Trump presidency euphoria, investors are also watching French politics, where conservative presidential candidate Francois Fillon on Monday vowed to fight on for the presidency despite a damaging scandal involving taxpayer-funded payments to his wife for work which a newspaper alleges she did not do. French pollster Opinion way published a survey on Monday that showed independent Emannual Macron resoundingly winning a presidential election runoff against far-right leader Marine LePen.

Interest rate hike - The Fed raised rates for only the second time since the financial crisis in December and most Fed policymakers agree with Harker that three more rate hikes this year would be appropriate. Wall Street banks and interest-rate futures traders are betting the Fed will only lift borrowing costs twice this year, starting in June.

Currently there is basket of positive and negative factors that might respectively push or pull gold prices further. Of course the positive factors for gold could indeed be overturned by a significant improvement In US employment statistics, or advances in GDP, thus strengthening the Fed’s hand, but if the dollar continues to fall (President Trump appears to think it is too high) and real interest rates remain negative, gold could yet have a good way to run this year, particularly given the global geopolitical uncertainties noted above.

Budget views 2017

From the previous budget to this year’s- Gold witnessed some key events in the domestic market.

They varied from politics to economic to geopolitical. Namely-

Demonetisation

Prime Minister Narendra  Modi made the surprise announcement on 8th November 2016 that the 500 and 1000 Rupees are just “worthless piece of paper”. The 500 and 1000 Rupees notes have been banned to fight back money and money-laundering. The new 2000 and 500 Rupees notes were released on 8th November 2016. The aftermath of demonetization, banks and ATM across the country faced severe cash shortages.

Goods and service bills passed

Goods and Services Tax bill were passed on 8 August 2016. GST is a proposed system of indirect taxation in India merging most of, the existing taxes into a single system of taxation. It would be a comprehensive indirect tax on the manufacture, sale and consumption of goods and services throughout India, to replace taxes levied by the state and central governments.

Surgical Strike Against Pakistan

The Indian said that it had conducted “Surgical Strikes against suspected militants in Pakistani-administered Kashmir on 29 September 2016. Lt Gen Ranbir Singh (DGMO) said that it had received “very credible and specific information” about “terrorist teams” who were preparing to “carry out infiltration and conduct terrorist strikes inside Jammu and Kashmir and in various metros in other states”. The Indian action was meant to pre-empt their infiltration.

But of the ones mentioned above gold was majorly affected in the year end by the announcement of demonetisation scheme.

Gold has been a beneficiary and even a victim of demonetisation. On a net basis, this demonetisation exercise as of now has been neutral for gold. As the demonetisation alarm bells rang, the rush to buy gold was almost immediate. As media reports suggest and also confirmed by gold import numbers, a lot of gold was sold on the night of November 8, as many rushed to buy gold with old notes. Post that, as the cash crunch hit the economy, there was a significant decline in discretionary spending including gold.

In many of our pre budget expectations over the past few years, we have always proposed to make the gold industry more organised. Fortunately, the demonetisation scheme, launching of a gold scheme and making PAN number compulsory for purchases of gold jewellery worth more than Rs 2 lakh shows the seriousness of government in making the making gold a commodity and thus channelizing it into a more organised way.These are signs of positive policy

After a neutral financial year for gold industry in India, all eyes were on the Finance Minister for the budget that was presented today- Feb 1st. This date marks the change in previous customary budget schedules which usually took place at around the end of February, usually February 28. The gold industry was hoping for a change from last few years of high import duties to a more reduced levy.

The industry was expecting a reduction in duty not onlyfor the interest of the dealers but also for the good of the common man.

However, there was no such announcement and duties have been unchanged. The budget is neutral for the gold industry and overall positive. On a scale of 1 to 10 I would rate this budget as 6.5.

Gold rises to Rs.29,750 on firm global cues, wedding season demand

Gold prices rose Rs. 200 to Rs. 29,750 per 10 grams at the bullion market here today on persistent buying by jewellers boosted by firm global prices according to RiddiSiddhi Bullions Limited.

Gold prices have been on the rise since January 28 and have gained Rs. 600 since then, added the Mr. Prithviraj Kothari, Managing Director, RSBL

Silver also crossed the Rs. 42,000 level by rising Rs. 300 to Rs. 42,200 per kg on increased off take by industrial units and coin makers.

Bullion traders said that besides a firm trend overseas, steady buying by local jewellers amid the ongoing wedding season mainly kept the precious metal prices higher.

Gold rose 0.59 per cent to $1,208.50 an ounce in Singapore today. The precious metal had risen by 1.25 per cent to $1,210.30 an ounce and silver went up by 2.75 per cent to $17.55 an ounce in New York yesterday, said a Bullion spectator.

In the national capital, gold of 99.9 and 99.5 per cent purity advanced by Rs. 200 each to Rs. 29,750 and Rs.29,600 per 10 grams respectively.

Sovereign, also went up by Rs. 100 to Rs. 24,400 per piece of eight grams.

In sync with gold, silver ready rose further by Rs. 300 to Rs. 42,200 per kg and weekly-based delivery by Rs.395 to Rs. 41,870 per kg.

On the other hand, silver coins remained steady at Rs. 72,000 for buying and Rs. 73,000 for selling of 100 pieces as per the statistics provided by RSBL.