Growing Number Of People Buying Gold

Gold is trading near a seven-year high, supported by an increasing number of coronavirus cases worldwide that threaten to curtail global economic activity. Gold has been rallying not only due to the virus but also due to the overall global economic growth.

Coronavirus- gold has been rising amid continuing worries over the Wuhan coronavirus. The price of gold bounced back from the weekly low ($1625) as COVID-19 showed no signs of slowing down, and fears surrounding the coronavirus kept the precious metal afloat as the outbreak dampened the outlook for global growth.

Gold edged higher on February 26 after a sharp drop in the previous session, as investors sought safe haven assets following a warning from the United States over the potential domestic spread of the coronavirus.

Global economy- After surging 18% last year, gold has extended its rally in 2020, with prices hitting the highest since 2013. The haven has been favoured as the virus outbreak has spread beyond China, threatening a pandemic and slower growth.

Perhaps, the worst case scenario to the global economy could start to materialize and that is keeping gold prices bid because everyone is concerned that the virus is leading to low yields.

The weakening outlook for global growth is likely to put pressure on major central banks to provide monetary support, and the low interest rate environment may heighten the appeal of gold as authorities like the European Central Bank (ECB) rely on non-standard measures to support Euro area.

It remains to be seen if the ECB will venture into uncharted territory as the Governing Council remains reluctant to push the main refinance rate, the benchmark for borrowing costs, into negative territory.

Federal Reserve- the Federal Reserve is expected to enact more “insurance” rate cuts as it looks like the U.S. economy has been impacted by the coronavirus. The virus could have a more significant impact than the trade issues had on the economy last year.

Friday preliminary PMI data showed that sentiment in the U.S. service sector contracted for the first time in more than six years.

The market is finding it difficult to look further into the medium term due to uncertainty regarding what the virus will do to the global growth. There are beliefs that central banks may cut rates sooner than later. Lower interest rates reduce the opportunity cost of holding non-yielding bullion resulting in a push in gold prices.

Gold has marked the longest winning streak since June, with the price for bullion trading at its highest level since 2013, and the precious metal may continue to exhibit a bullish behaviour as market participants look for an alternative to fiat currencies.

Besides the safe-haven demand, a growing number of people are buying gold in anticipation of weaker growth from the spread of coronavirus and action from the Fed.

So far, economists have only snipped their expectations for the economic impact on the United States and the profits of American companies. But the sharp tumble in stocks — and more importantly bond yields — on Monday suggests investors are quickly moving beyond those relatively rosy views.

Prithviraj Kothari is the author of this article. Find more information about Prithviraj Kothari.

Coronavirus Fears Continue To Impact Gold Prices

Gold prices have rallied about 7% year to date. Gold was seen trading near $1,670 an ounce, on Monday 24th February; its highest level since early 2013, boosted in part by a flight to safety stemming from the spreading coronavirus.

Gold soared as much as 2.8% on Monday to its highest level in seven years, as investors worried about global economic growth in the face of sharply rising coronavirus cases outside China.

Spot gold was up 1.9% at $1,674.40 per ounce during Monday’s trading session. The session high, $1,688.66, was its highest since January 2013.

The rise in gold was close to three times the gains in the S&P 500 before the selloff on Monday, Feb. 24 — while bond yields are at or near historic lows in the U.S. and in negative territory in many other developed economies.

Rising concerns and fears over the virus have spooked the markets. And the fear is not only over the rising medical emergency but also the result that it will have on various economies.

Outside mainland China, the outbreak has spread to about 29 countries and territories, with a death toll of about two dozen, according to a Reuters tally. However, the rate of infection in China has eased.

The World Health Organization said it was worried about the growing number of cases without any clear link to China.

The missed work days in China may be equal to the entire U.S. work force taking a two-month unplanned break. The sheer size of this disruption is starting to be felt not only in China but also elsewhere, raising the risk of further short to medium-term pressure on growth-dependent commodities before demand eventually returns to boost prices.

There was a sharp rise in coronavirus cases reported in Italy, South Korea and Iran, with Afghanistan and Iraq reporting their first cases.

Investors view gold and other assets like government bonds and the U.S. dollar as safe havens during times of stress.

Investors’ fears over the virus outbreak triggered a wide sell-off in equity markets.  In Europe, markets had their biggest daily declines since mid-2016.

Concerns about the human and economic cost of the coronavirus continue to drive the need for strategic diversification and safe haven demand.

Gold is “a great hedge against market shocks and rising inflation” and is also a “great diversifier” in portfolios.

The yellow metal is a “great asset to add to more conservative portfolios and should ideally  take an equal but small pro-rata share from equity and bond allocations in those portfolios to end up with a 3% to 5% allocation to gold.

Gold is a “safe” investment with a “store of value” during tumultuous times like today, buffeted by geopolitical risks from Afghanistan, Iran, Iraq, Syria, North Korea and the U.K. (Brexit), uncertainty about the upcoming U.S. presidential election and, more recently, the spreading coronavirus.

At the same time gold is supported by strong demand for jewellery and central bank reserves, especially from emerging markets.

The news from Italy has taken coronavirus fears to the next worrying level of a global pandemic, potentially triggering significant stock market sell-offs, sending Gold above $1,800, and perhaps pushing the Federal Reserve to a rate cut in March.

We believe that the combination of additional rate cuts, increased stimulus, and negative US real yields – which reached a 7-year low at -0.15% - and increased worries about company earnings going forward, will continue to drive strategic diversification and safe haven demand.

Adding to this is the clear risk that the virus outbreak may have a longer and more profound impact.

Gold could be on the verge of a long-term super cycle if interest rates remain at historically low levels in the U.S. and around the world and the yellow metal breaks above the $1,888 high reached in 2011.

Prithviraj Kothari is the author of this article. Find more information about Prithviraj Kothari.

Coronavirus Gives Rush To Gold Prices

Past six to eight months have been quit pleasing for fold. There are plenty of good reasons to be optimistic about gold’s prospects.

The global economy and the financial system are already stretched to a breaking point and Demand for precious metals is heating up. This, of course, is plain for all to see, even As mainstream investors and analysts still refuse to face facts and prefer to focus on naïve hopes of an eternal expansion.

If we look at these factors in detail we can see that these risks will be going forward and creating a more uncertain atmosphere for gold which will further push prices higher.

The massive policy U-turn by the Fed certainly played a part, and so did the move by the ECB to resume its own easing policies and monthly asset buying spree. We have officially returned to loose monetary policies across the board, and this provided a boost to precious metals until now.  Another important factor was the renewed interest in gold by institutional players, as demand from that side of the market also picked up significantly.

Bullion is rising at a time when U.S. stocks are at an all-time high even as traders weigh the global impact of the disease. While Hubei, the province at the centre of the outbreak, reported fewer cases after another revision to its counting method, there are signs of deepening economic damage. In addition, two deaths were reported in Iran, highlighting the threat outside China.

The coronavirus had a downward effect on most commodity prices. Since 20 January – the date of confirmation of human-to-human transmission – prices of energy and industrial metals have fallen significantly. The outbreak has grown exponentially since, and is expected to impact the global economy dramatically during Q1. But gold has rallied quite high compared to other metals.

The traditional haven has climbed more than 6% this year amid mounting concern over the effects of the virus, with companies from Apple Inc. to Burberry Group Plc cutting guidance. While minutes from the latest Fed meeting showed that officials indicated they could leave rates unchanged for many months, futures traders maintained expectations for at least one cut over 2020.

A market convinced that the Chinese slowdown will elicit further rate cuts in developed markets chose to ignore surprising rises in inflation in both the U.S. and U.K. earlier. U.S. factory gate prices rose 0.5%, taking the annual rate of producer price inflation to 2.1%, its highest since May, while the U.K. consumer price index rose more than expected to 1.8%, still below the Bank of England’s target but an upside surprise consistent with other strong data this week that have argued against further rate cut.

Gold traded near a seven-year high on concern that the coronavirus outbreak will retard global growth, coupled with speculation the Federal Reserve will ease monetary policy before the year-end.

In the domestic markets too, for the sixth consecutive day, gold prices touched life time high of Rs 41,636 per 10 grams in Mumbai's bullion market as demand for the safe-haven metal rose after Apple issued a warning that its sales would be impacted by coronavirus epidemic in China.

The rate of 10 grams, 22-carat gold in Mumbai was Rs 38,139 plus 3 percent GST, while that of 10 grams, 24-carat gold was Rs 41,636 plus GST.

Gold prices edged higher touching the $1,600 level as the death toll and the number of affected people due to the coronavirus outbreak continues to rise.

Warnings from Apple and HSBC that the epidemic was damaging their businesses lent support to the metal prices.

Gold prices hit a seven-year high on Wednesday as expectations of further monetary policy easing to cushion the economic impact of the Covid-19 outbreak.

Precious metals had to battle with a split-personality market, as demand for the ultimate haven asset was accompanied by a rebound in risk assets such as equities and oil. Bond yields, which normally fall when gold rises, rose by one to two basis points along the Treasury curve.

But given that China is already struggling with a huge corporate debt problem, some took the view that bailouts were likely to be followed by loan defaults and ever-greater problems with the Chinese financial system – a development that hardly makes havens like gold less attractive.

Support for the yellow metal is driven by economic uncertainty related to the coronavirus – i.e. how long could the pandemic last and what its ultimate impact will be on world economic grow.

Prithviraj Kothari is the author of this article. Find more information about Prithviraj Kothari.

Gold Remains Consolidated

By the time we reached mid-week, gold prices were pushed slightly down due to labour reports, controlled situation of the corona virus and lower demand.

Gold prices edged lower on Tuesday and continue to trade sideways. The Labour Department reported on Tuesday that Job openings dropped in December to their lowest level in two years. Total vacancies now at 6.4 million, down from nearly 6.8 million in November. Wall Street estimates had been for about 6.9 million. Vacancies continued to decline in manufacturing with a 24% decline year-over-year. Overall, the hiring rate fell from 4.3% to 4%. The Job Openings and Labour Market Survey showed that total vacancies outnumber job seekers by nearly 700,000, down nearly by half from a few months ago.

Positive data released sent gold prices down.

Further, In the United States, Federal Reserve Chair Jerome Powell told Congress on Tuesday the U.S. economy is in a good place, but cited the potential threat from the epidemic and concerns about the economy's long-term health.

The corona virus epidemic continued to stifle activity in the physical gold markets in top bullion consumer China and Hong Kong this week, while demand was mixed in other Asian hubs. The death toll in mainland China reached 637 on Friday, with a total 31,211 cases, the World Health Organization chief said, while a Reuters tally showed 320 cases in 27 countries.

Gold was little changed on Wednesday, as equities rose after the number of new corona virus cases fell, while uncertainty over the economic impact of the outbreak underpinned bullion.

While the death toll exceeded 1,000, China's foremost medical adviser on the epidemic said infections may be over by April, with the number of new cases already declining in some places.

As the virus scare is fading out, gold seems to be on a consolidation phase.

But we still see support for gold as the negative knock-on effects of the virus are yet to be witnessed and further the cumulative impact of existing tariffs following the U.S.-China Phase 1 trade deal.

It’s quite possible that China might reduce the purchase of U.S farm products this year under the Phase 1 trade deal. The virus outbreak could further dampen the trade situation between these two countries.

Also keeping gold in check, the U.S. dollar stayed close to four-month highs after soaking up safe-haven flows as worries about the corona virus coincided with recent data showing the U.S. economy's strength.

Gold, which is often used as an insurance against economic risks, tends to appreciate on expectations of lower interest rates, which reduce the opportunity cost of holding non-yielding bullion.

Prithviraj Kothari is the author of this article. Find more information about Prithviraj Kothari.

Gold Soon To Be The Premier Asset

Gold climbed for a fourth straight day as investors weighed the unfolding corona virus crisis, including a blunt warning from the head of the World Health Organization about the potential for more cases beyond China.

Prices rose as the global death toll from the outbreak topped 900 and the WHO Director-General Tedros Adhanom Ghebreyesus voiced concern over the spread from people with no travel history to China, saying “we may only be seeing the tip of the iceberg.” Beijing will spend at least $10 billion to fight the outbreak.

Bullion’s trading near the highest since 2013 as investors assess the impact of the disease on global growth and appetite for risk, although concerns over weaker physical demand for gold in China is capping gains. The effects of the virus have presented a “new risk” to the outlook, according to the Federal Reserve, and the issue will probably be front and centre when Chairman Jerome Powell kicks off two days of Congressional testimony on Tuesday.

We have been time and again talking about the corona virus, its effect on China and on the global economy as a whole and what are the possible consequences of the same. Well even though this virus is confined to mainland China, it’s having spill over effects globally.

The recent lockdown has deeply affected the international supply chains. It’s like shutdown down the world. So many companies rely on Chinese manufactured goods that this kind of disruption is bound to have a hugely negative effect on other countries’ economies.  Further an increasingly panicked global population may eschew any Chinese goods for fear that they may be tainted with the virus, however unlikely this may be.

Let’s have a look as to how this lockdown is affecting the other parts and various industries-

• The scale of disruption in China is already staggering. Hyundai, the fifth-biggest global car maker, has been forced to close all its factories at home in Korea for lack of key components. Volkswagen, Toyota, General Motors and Tesla have all downed tools at their Chinese plants, as has Apple’s iPhone supplier Foxconn.
• There were news that Fiat Chrysler in the U.S. may have to halt production due to a lack of component availability from the Chinese manufacturers on which it relies.
• Reports suggest that as much as 90% of Chinese manufacturing exports have already been shut down as city after city goes into quarantine lockdown.  Many observers suspect, show over 40,000 confirmed cases of the virus and over 900 deaths so far and still rising.
• Apart from China, cases if corona virus have been reported in Hong Kong and Macau too. So far over 130 confirmed cases in 24 countries and, thankfully, only 1 death but it is early days and this may well be the tip of the iceberg (Reported cases in the UK doubled to 8 this morning).

Markets have stated to realize the serous effects this virus will have on the financial markets. We are expecting a met-down in the equities markets. Major market led by  high-flying stocks like Apple and Tesla which both have heavy dependence on Chinese manufacturing to maintain earnings levels, will lead to a downturn in Asian and European equities markets. This might initially benefit gold and silver but they can turn down sharply as good assets are generally sold along weak side ones during a liquidity crisis.

Down the line we’d be nervous about all commodities including the major safe-haven precious metals.  China is the world’s largest gold consumer and demand there is sure to be disrupted and unless this can be replaced by increased demand in the West and from Central Banks we are going to see a demand downturn in any case.  Perhaps the timing is lucky in that new mined supply appears as if it may have peaked, while lower prices, if they materialise, will probably reduce recycled supplies and perhaps see a consumption pick-up in India where high gold prices are said to have adversely affected local demand.

In such uncertain times fold is usually the go-to asset.

During the recession and inflationary crisis of 1978-1980, gold skyrocketed again, jumping 29% in 1978, 120% in 1979, and 29% again in 1980. During the crash of 1987, gold jumped 24%.

Another gold rally struck from 2002 to 2003, just after the collapse of the Dot Com Bubble, rising over 40% as the U.S. went to war with both Afghanistan and Iraq. It was also around this time that central banks began amassing gold reserves once again, but primarily among eastern nations like China and Russia. This gold buying spree has only expanded in recent years, with banks buying more gold in 2018 than they have in over five decades.

The next major gold market rally, triggered from 2009 to 2012, is well remembered by most of us. Prices jumped around 70% total during the onset of the credit crash.

Again, because central banks are buying exponentially, and because the global economic system has been in a constant state of distress since the crash of 2008. Gold prices are not going to drop back to pre-crisis levels when our economy is perpetually unstable and none of the problems from 2008 have been fixed.

Gold rallied from $1,200 in September of 2018 to nearly $1,600 in the span of a year, and central banks are continuing to buy regardless of the price increases. They seem to know something that most of us only suspect.

With the historic trends displayed plainly here, it is easy to predict what will happen next.
• The corona virus outbreak is about to be labelled an official pandemic.
• The Fed’s repo market stimulus has failed to quell liquidity issues within the U.S. banking system
• U.S. corporate debt and consumer debt is at all-time highs,
• The UK has just left the European Union with a No Deal Brexit (as predicted)
• The U.S. is initiating a troop build-up in the Middle East to surround Iran.

It was last during World War I that so many crises happened simultaneously. Not since World War I have we seen so many crisis events happening simultaneously.

It only makes sense that gold will once again become the premier asset for defending your savings.

Prithviraj Kothari is the author of this article. Find more information about Prithviraj Kothari.

Gold Demand May Rise Soon

Gold has experienced resurgence as a reserve asset – central banks have become net buyers over the past 10 years, and their holdings have reached levels not seen since the 20th century. This has several origins, among them growing geopolitical tension between regional blocs; the swelling share of negative-yielding fixed income securities; and the emergence of possible challenger currencies to ‘king dollar’, which holds a more than 60% share in global foreign exchange holdings.

Currently, all eyes are on headlines about the virus, many central banks may be dovish—which lowers other currencies, even as the U.S. seems to be the most liquid and safest for capital. All this is temporarily leaving gold buyers to seek other trading opportunities for now.

Price losses for the metal had worsened in the wake of data released Monday that U.S. manufacturers grew their businesses in January for the first time in six months. The survey by the Institute for Supply Management rose to 50.9% last month to 47.8%. The moves for bullion come after the most-active April contract saw a weekly climb of 0.6%, and a rise of about 3.8% for the month. The settlement level also marked the highest weekly price finish since March 2013.

Gold futures on Monday posted their first loss in four sessions, with haven demand for the metal taking a hit as U.S. equities partially bounced back from a corona virus-triggered selloff, and the U.S. dollar and government bond yields rose.

However, the spread of corona virus around the world continues to dominate commodity markets. The energy sector remains the focal point of the selling, with crude oil under pressure.

China’s National Health Commission on Sunday said cases of the novel corona virus reached 17,205, while the death toll was more than 360. Cases also have been reported outside the country, with the World Health Organization and Trump administration last week declaring public health emergencies.

Gold continues to shine amid the turmoil. The safe-haven asset has seen strong demand over the past week as investors rotate out of risky asset classes. This has seen the gold price push towards USD1, 600/oz. Dovishness from the US Federal Reserve has helped. Chair Powell said the central bank is carefully monitoring the epidemic and its effects on the US economy.

We expect a lower U.S. dollar over time, and this is one of the major drivers of gold and silver prices. Second, as long as the amount of negative-yielding government bonds is substantial, precious metals and commodities are attractive to invest in (not negative-yielding). Third, major central banks will likely continue to support their economies, and higher official rates are nowhere on the horizon. Fourth, we expect some pick up in jewellery demand from China.

While we expect these events will continue to play a major role in determining precious metals prices in 2020, there are, of course, other variables to consider as well, particularly the underlying fundamentals of supply and demand.

What is more, the recent increase of unrest in the Middle East is slowly building in a premium in precious metals prices, first and foremost supporting gold and silver as a hedge against increases in systemic risks. The political rhetoric is surely heating up in Iran and Iraq following the US attack on a high military Iranian official and, together with the ongoing trade deal saga, these two events could well be the main catalyst for higher precious metals prices in 2020.

Gold has been going strong.  It has always been looked over as a hedge tool. Gold can provide a protection cover against systematic risks, stock market pullbacks, and recessions. It even lowers the risk in a portfolio and efficiently manages diversification.  It further provides liquidity to meet liabilities during times of market stress.

Research shows, an allocation to gold in a typical stock/bond portfolio has provided better returns than those with little or no gold. It also lowers your risk.

Portfolios that include gold have fallen less in bear markets and risen more in bull markets. The long-term value of a portfolio is clearly enhanced by including gold.

And with continued escalation and unrest, demand for gold is expected to rise further as markets will rush towards this safe haven asset which is further expected to push prices high.

Prithviraj Kothari is the author of this article. Find more information about Prithviraj Kothari.

Pre-Budget Views 2020

There has been a steep decline in jewellery sales over 12 months, and jewellers are facing adverse impacts of the slowdown because of the increase in gold prices, and a slowing of the overall economy.  Moreover gold prices have sky rocketed over the past few months which has further dampened the demand.

At present, gold attracts an import duty of 12.5 percent and a GST of three percent.

This increase in customs duty for cut and polished coloured gemstone is the biggest hit. Additionally, the increase in import duty on gold has had a spill effect and made the grey market stronger. With these duties, it becomes difficult to compete in the world market and export, as China is a major competitor. In fact in the past few years China has overtaken India as the world’s largest consumer of gold.

The volatility in the markets has also pushed gold sales down. Even though safe haven demand is there but in the retail jewellery market, the sales haven’t picked up much.

In the run-up to the Union Budget speech on February 1, 2020, Indian micro, small, and medium enterprises (MSMEs) in the gold jewellery segment are feeling the impact of the decline in jewellery sales. The country saw demand for gold falter in the second half of 2019. Some factors for the decline include a rise in international prices (India imports most of its gold), hike in import duty from 10 percent to 12.5 percent, and liquidity crunch in the Indian economy. And, the Union Budget 2020 could go a long way in alleviating some of these concerns if it focuses on lowering import duty on gold.

Jewellers hope for the volatile market to settle down. They are expecting Union Budget 2020 to come up with good policies to bring stability and better phases in the jewellery industry as there is an immediate requirement to cut down custom duty and import duty charges.

Hoping that this year’s Budget will provide for a reduction in duty on imports of cut and polished diamonds. The gold and jewellery industry is going through one of its toughest phases. However, gold jewellery exports grew 21 percent from November 2018 to November 2019, according to the Gem & Jewellery Export Promotion Council (GJEPC) data.

The Union Budget 2020 is expected to provide for a reduction in the import duty on gold because there is an immediate need for a cut in customs duty.

A possible import duty cut on gold in the upcoming Budget could curb smuggling and boost sagging imports. Commerce Ministry has reportedly asked for a reduction in import duty on gold to boost exports and manufacturing in the gems and jewellery sector. Import duty on gold was increased from 10 to 12.5 percent in the previous Budget.

Despite what the Budget may hold for the segment, volume growth for jewellers is expected to increase on the back of reintroduction of low-cost gold metal loans and likely stabilisation of gold prices at lower levels.

Prithviraj Kothari is the author of this article. Find more information about Prithviraj Kothari.