Long term drivers remain intact for gold

 GOLD turned quite bearish over past few days, as the USD surged higher, after losing a lot of ground in the previous weeks. There was not much change in the market sentiment, so the move didn’t come from Gold, but from the USD, since the Buck made some strong gains against all other instruments.

Gold ended a remarkable nine-week rally, as it declined for the first time since June. The yellow metal briefly fell below $1,900 an ounce last Wednesday as stocks neared their all-time closing high and the 10-year Treasury yield jumped on record supply. Wednesday’s $38 billion auction of 10-year government bonds was the largest in U.S. history. The troy ounce of the precious metal closed the week with small losses at $1,940. 

Top gold dealer in India were devastated to see gold dropped to its lowest in over a week and was on its way for a  second straight weekly decline on Friday, as a strong rebound in the dollar and a resurgence in U.S. business activity hurt bullion's shine. 

Prices have witnessed a wave like movement over the week due to 

• weak positioning 

• delayed stimulus package agreement

• a bounce in the U.S. dollar and 

• real rates

Gold reached its life time high but then consolidated last week as news surrounded the onset of corona virus vaccine. Adding to this positive news, were signs of improving global economies as all have entered the unlock phase and reviving towards the path of growth.  Bullions posted consecutive weekly losses for the first time since June. On Monday it headed towards the third decline says RSBL Gold

US markets rallied over Trumps statement of extending support to the economy. 

So, USD index also showed signs of pull back to take out big resistance area at 93.30-93.50. 

Gold prices are quoted lower once more at $1926 an ounce on Tuesday, pressured by a more robust U.S. Dollar. 

This week we have important data releases which might change the momentum for gold- positive or negative would depend on the following numbers- 

• second-quarter GDP data from Germany

• Durable Goods Orders will be featured in the US economic docket

• Jerome Powell, Chair of the Board of Governors of the Federal Reserve System, will be discussing the Fed's monetary policy framework in his opening remarks.

The price of gold consolidated after trading to a fresh record high ($2075) in August, but the macroeconomic environment may keep the precious metal afloat as the Federal Reserve appears to be on track to retain the current policy at the next interest rate decision on September 16 gives relief to top gold dealer in India.

Despite the correction, gold continues to remain bullish over the following drivers-

Inflation- Historically, inflation has been constructive for the gold price. As the purchasing power of the dollar falls, savers and investors may seek other, more reliable stores of value, including the yellow metal.

Debasement of currency-  when a lot of money is printed, the dollar gets devalued and gold rises against the dollar. Gold rallied while debasing the currency as we are printing trillions and trillions of dollars to spur the economy. In the process the dollar comes under pressure and strengthened gold

Interest rates-  Falling real yields and a weakening USD have seen investor demand surge. We see this demand remaining strong for the foreseeable future amid a challenging macro backdrop. The expansion of central banks' balance sheets shows no sign of abating, while US-China tensions escalate. 

This should see interest rates remain low, leaving further upside to gold prices. It’s important to keep in mind, though, that the metal’s long-term drivers remain intact assures RSBL Gold. We have unprecedented monetary and fiscal stimulus, with more potentially on the way.

Important week for gold

 Now that gold has crossed the $2000 mark, investors are expecting it to head towards $3000. 

Gold is in high demand by investors and this is keeping the rally alive in gold. 

Even though gold was pulled down around 2% on Friday, the macro economic factors have still managed to push gold prices higher. Global monetary and fiscal stimulus is the key drive behind gold price rally. 

After a drop in prices this Friday, gold managed to bounce back as the week opened. Gold prices steadied on Monday after a steep fall in the previous session, as concerns over a worseningCOVID-19 pandemic and intensifying U.S.-China tensions underpinned the metal's safe-haven appeal.

In any kind of uncertain financial crisis gold is considered as the best asset to keep inflation at bay. In 2019, after the Federal Reserve signalled that it was suspending plans to push interest rates higher, gold mounted another ascent. Historically, gold has done best when interest rates falling below the rate of inflation. As the inflation-adjusted return on bonds turns negative, investors feel comfortable owning gold as a store of value, even if it yields nothing.

That is what has been happening over the past few months. With bond yields near zero in the United States and negative in Europe and Japan, investors have driven up the price of gold more than 30 percent this year after a gain of nearly 20 percent last year. In recent weeks, that surge has been turbocharged by growing expectations that all the money governments are pumping into their economies will reignite inflation.

Currently the need of the hour is to stabilise economies by providing financial support. And in the need to do so, gold and silver are going up. Printing of money is positively affecting precious metals stated Mr Prithviraj Kothari of RSBL. 

As interest rate go lower or negative, investors have money in the bank that will be essentially taxed as they’d have to pay interest on it.  This is why people are buying gold, taking delivery of gold bars, and buying future

On one hand we have the uncertainty of the virus and on the other hand, we have the fiscal stimulus negotiations. The passage of another major stimulus package would likely mean more money printing, weaker U.S. dollar, and higher gold.

This week has a lot in store for gold-

Another major driver for gold next week will be rising tensions between the U.S.-China, especially after Trump signed a pair of executive orders that prohibit U.S. residents from doing business with China’s TikTok and WeChat apps.

Important data releases- the U.S. PPI , the U.S. CPI , the U.S. jobless claims,  the U.S. retail sales and industrial production data on Friday.

U.S. President Donald Trump said that he might be getting involved if no agreement is reached by signing an executive order to extend enhanced unemployment benefits and impose a payroll tax. 

Furthermore, U.S. President Donald Trump signed executive orders on Saturday partly restoring enhanced unemployment payments to the tens of millions of Americans who lost jobs in the pandemic, as the United States marked a grim milestone of 5 million cases.

RSBL as well as all the top gold dealers of India are planning to keep a close watch on the important numbers being released this week as it will create a significant impact on gold and silver. 

The situation can't get more supportive for gold

Well to begin with, my last blog has justified its title- Will gold cross its life time high? Yes, it did and how. It managed to breach $1917 and create fresh highs at $1955 on Thursday. 

Amid profit taking and as investors’ appetite for riskier assets improved after the Federal Reserve pledged to use all the tools to support the US economy, US policymakers left monetary policy unchanged and warned that the ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. Also, traders continue to monitor negotiations on the $1 trillion stimulus package proposed by Senate Republicans on Monday, rising coronavirus infections and US-China tensions.

Gold is on course for its biggest annual increase in more than a decade, driven by concern over the coronavirus pandemic and damage to economies, with gains supported by negative real yields and a weaker dollar. 

The dollar ’s slide comes as the U.S. lags most of the world in controlling the spread of COVID-19, and some expect the country ’s economic recovery to lag others, including Europe. The prospect of mounting U.S. deficits as a result of continued fiscal stimulus and ultra-low U.S. interest rates have also put the dollar under pressure.

U.S.D index at 93.6, fell more than 6-7% in the past 6 months and with pandemic and bitter U.S- China relations, there is increased historical pressure on USD to sustain its global currency status.  Riding on the dollar weakness, gold has managed to rise by $500 in the past 5-6 months. December contract hit $2000 an ounce and thereafter we had a massive profit taking to drop by $75, though it showed recovery again. 

The much awaited FOMC meet, proved to be more or less neutral for gold. Fed’s chairman Powell was vocal in saying that their efforts on to every possible support as and when desired for the ailing US economy. So, this is a clear sign that US economy is going to see more plunging as Covid related issues are hurting the growth very severely. 

We are already in a bull run that has started swiftly since the past 6 months and is expected to continue for long, a fact very strongly believed by the bullion king of India. There could be a correction of $70-$80. All the top gold dealers of India are convinced that if the global economic scenario continues to remain weak then the sentiments continue to remain bullish. Gold is also rising because investors are seeking havens as the virus ravages the global economy. 

The situation can’t get more supportive for gold. The low interest rates will give you a benign dollar and a benign dollar is very helpful to gold prices because it makes it much more affordable globally.