Sentiments are strongly bullish for Gold

Time and again, gold has enjoyed a safe haven status, and in the current pandemic scenario, investors are always on the verge of safe places to park their funds. Hence sentiments for the yellow metal have grown bullish, supported by demand and hence some analysts believe that currently gold has been overbought.

Furthermore, weakness in the dollar and low U.S Treasury yields are expected to provide further support to gold. The price of gold has extended its correction from the record highs above $2 070, registered in the first week of August. Despite this, there is no reason to panic and as long the price of gold is above $1 800 this precious metal is in the “buy” zone confirmed the spokesperson from RSBL.

The price of gold may be ready to advance higher as Federal Reserve announced that will keep interest rates lower for longer to support the economic recovery

U.S Fed kept the interest rates unchanged, as expected. The latest FOMC statement and economic projections signal are that the interest rates will stay at zero until the end of 2023. This is excellent for gold. 

On Wednesday, the Federal Reserve issued a statement regarding the FOMC meeting, which was held from September 15-16. The US central bank kept the interest rates and the conditions of its quantitative easing unchanged

U.S. weekly jobless claims report on Thursday showed a smaller-than expected decline in new claims, weighing on the dollar and bolstering the appeal of gold as an investment alternative.

The unemployment rate is forecasted to be around 7.6 percent in 2020, compared to the 9.3 percent seen in June. The fact that the recovery has progressed quicker than expected is bad news for the gold prices. But still, the overall economic activity remains well below the pre-pandemic level.

U.S. data also showed that more Americans submitted unemployment claims than forecast, with 860,000 initial jobless claims against the estimated 850,000. The data also showed that almost 30 million Americans were claiming unemployment benefits as of the end of August.

When it comes to the PCE inflation, the FOMC now sees higher inflation in 2020 (1.2 percent) than June when they expected only 0.8 percent. However, the FOMC projects that the inflation rates will be below their target until 2023, which is an excellent excuse for continuing their dovish monetary policy, thus supporting gold prices while the dollar declines.

Last week's trading saw gold forming its high in Wednesday's session, here doing so with the tag of the 1983.80 figure. From there, a decent decline was seen into Thursday, with the metal dropping down to a bottom of 1938.20 - before bouncing off the same into the weekly close.

Gold prices gained on Friday buoyed by a weaker dollar and lingering concerns over an economic recovery from the damage inflicted by the coronavirus pandemic that were underscored by elevated weekly U.S. jobless claims data.

Spot gold climbed 0.6% to $1,953.80 per ounce during Fridays trading hours and was on track for a second straight week of gains, rising 0.7% during the day.

RiddiSiddhi Bullions Limited confirmed that sentiments are strongly bullish for gold as markets expected prices to rise higher and even hover in that zone for a long time.

An environment of negative real interest rates, uncertainty over the global economic future and global uncertainties, such as the upcoming U.S. presidential election, are among the reasons that have pushed investors to build up their gold holdings.

Meanwhile, in the domestic markets, market participants await prices to stabilise as the festive season begins.  Hopes prevail in the markets that demand might rise, over price stability. 

All eyes on Fed Meet

Time and again, gold has been considered as a safe haven asset. In recent times, gold did deviate from this notion in March, as its prices fell following a crash in global stock markets.

This deviation underlines the uncertainty that gripped investors that month, with some gold owners presumably selling bullion to cover losses or to increase cash holdings.

But the past 3-4 months, have brought a significant  rally in gold prices. Though gold witnessed a few dips, but it managed to bounce back.

Last Friday, gold closed at $1,938 per ounce, up $14 for the week on excellent volume, considering it was a holiday week. During the trading week, gold showed excellent stability, closing the four days trading within a $20 range from high to low.

After reaching an all-time high of $2,070 on August 7th and seeing a selloff (profit taking) on August 12th, taking the price down to $1,870, we are now seeing base building. 

Last week gold had weakened over news of renewed vaccine. This hope triggered a strong DOW Fut at +285 and whole Asian markets mood lifted owing to that. The Oxford and Astrazencia vaccine trial resumed, but the number of patients across U.S, India, France and Brazil continued to rise. Some worrisome news came from France where initial talks of 1 week shut-down were under consideration. Moreover, Israel will also be doing it shortly. So, these are new dangers for the global post-Covid growth that is being factored by the markets. 

Gold rose to its highest in nearly two weeks on Tuesday, propelled by a softer dollar and expectation that the US Federal Reserve will reinforce its accommodative monetary policy.

Spot gold rose 0.6% to $1,968.94 per ounce on Tuesday, having earlier climbed to $1,971.71, its highest since Sept. 2. 

Once again gold was riding high over bullish sentiments. In the past five sessions, gold had four positive closes and it continued to rally on Tuesday morning. 

Gold (XAU/USD) built on Monday’s 1% rally after a steady start on Tuesday, reaching fresh nine-day highs at $1967. 

The main highlight in the past few days were-

• an improvement in the risk-sentiment

• courtesy of the vaccine hopes

• upbeat Chinese data 

• renewed US-Sino trade optimism

A good sign in the ongoing global crisis were the Chinese activity numbers that came in stronger than the estimates, suggesting the economic recovery is gathering steam. China’s industrial production in August was up 5.6%, year-on-year, and up 1.0% from July. Meantime, U.S. industrial production rose 0.4% in August from July, failing to meet expectations for a 1.0% rise in the period. However, July industrial production was revised up 0.5%, to a 3.5% rise from June. Also, news that China extended tariffs exemptions on some of the US good imports further fuelled the market optimism.

But markets were more focussed on the events lined up this week.

Gold futures on Tuesday headed higher and aimed for a second straight gain as investors awaited dovish statements from global central banks that are likely to support bullion buying in the midst of the global coronavirus pandemic.

There are going to be important policy decisions from major institutions- The Federal Reserve, Bank of England followed by Bank of Japan.

Bullion dealers across India and around the world as well as investors are expecting policy makers to promote a regime of low interest rates for a prolonged period to combat COVID-19, which could lift both gold and stocks further, commodity analysts forecast.

Given the current situation, central banks are expected to convey a dovish message to the markets which would further result on higher gold prices.

Prithviraj Kothari of RSBL suggests that market participants now await the U.S. Fed’s two-day policy event which ends on Wednesday, its first such meeting since Chairman Jerome Powell unveiled a policy shift towards greater tolerance of inflation, effectively pledging to keep interest rates low for longer.

Gold should be brought strategically

Gold has always been considered inversely proportional to other assets in its class- equity, debt, real estate etc. Amongst all these, gold has always given better returns during risk-off periods. The reason why gold enjoys a safe haven appeal is that it protects investors’ capital against tail risks and other events that have an adverse impact on capital or wealth.

During this pandemic too, gold has been seen performing significantly well across all asset classes. Precious metals prices continued their three-month long uptrend amid the COVID-19 pandemic. Demand for gold has been buoyed by safe-haven buying and global policy support in response to the pandemic. However, we saw gold fall sharply as the news of Russia discovering a vaccine came in.

The world is eagerly waiting for the discovery of a covid-19 vaccine in the hope that normalcy will return soon after. While experts say that it will definitely boost the economy, the impact may not be positive for all investment asset classes. For instance, gold, which has had a dream run this year, may correct, while equity might see a rally in the short term as it may have already factored in the vaccine discovery event. Experts believe that gold prices may correct post after a vaccine is approved.

Gold had a substantial run over the past one year and as no asset class can move in a straight line forever, gold prices are expected to correct as soon as an approved vaccine is discovered. However, the resurgence of patients in Europe is a brutal reminder that the pandemic is not over yet and that the second wave is only a couple of months away.

Prithviraj Kothari believes that such a second wave would be positive for gold prices. However, it should include the US as well, as the resurgence in cases limited to Europe could strengthen the greenback against the euro and gold, neutralizing the increased safe-haven demand for the yellow metal.

-If the second wave occurs, it should be bullish for gold not only because of the resulting economic slowdown and increased uncertainty but also because of the new stimulus programs that would probably be announced by both by the central banks and the governments.

And hence, sentiments for gold remain bullish. Following these sentiments, Smart investors are rightly buying gold, recognising it to be a hedge and/or a store of value during uncertainty. While demand for jewellery and physical gold has taken a hit, the focus is on the investment forms of gold. Even the central banks of the world, recognising the risk involved, are adding to their gold reserves. Gold, as you may know, plays an important role in central banks’ reserve management.

The top gold dealer in India opines given the on-going extreme turbulence in the equities, gold holds the potential to provide respectable returns.

Precious metals prices are expected to average 13% higher in 2020 relative to 2019 on expectations of strong demand due to heightened global uncertainty and ultra-low real interest rates. Upside risks to this outlook include a second COVID-19 wave causing a sharper-than-expected global slowdown. On the downside, a stronger U.S. dollar could push prices lower.

Particularly now when there is no imminent end to the Covid-19 pandemic, the spotlight will continue to remain on the precious metal.

Until the Covid-19 pandemic is contained and economic uncertainty prevails, the spotlight will continue to remain on gold. It makes good sense to buy gold strategically. The long-term secular uptrend exhibited by gold highlights the importance of owning gold in the portfolio with a longer investment horizon.

Gold looking for guidance from Central bank policy meeting amid 50 Days left for US elections

Gold has taken up a holding position in the $1900s after setting a mark just above $2000 an ounce in August, and this week's Federal Reserve meeting will continue to affect the next step of the haven. The two-day meeting — with the statement and Jerome Powell's Wednesday press conference — It just comes a few weeks after the Fed chief explained the Bank's new approach to fulfilling its dual mandate by embracing a more optimistic approach to inflation. Powell at the time described the long awaited change as "a robust update."

Officials will also update their economic and rate predictions in September, but the framework review may have taken the most of its thunder. U.S. central bankers will measure where they see rates going into 2022 in their common "dot plot" chart, but most Fed watchers and analysts across the world as well as top gold dealers alike have already expected rates remaining at zero well before the Fed's framework review has solidified that hunch.

There’s good and bad news. Before lifting prices, the Fed will be vigilant as it expects the recovery to speed up. But the bad news is that it does not have a lot of ammunition left in its arsenal to support the economy if it winds up in need of more aid — at least in the manner it may need aid. Officers say they 're left with more firepower, and they do.

In addition, the Bank of Japan and Bank of England will take decisions this week, all on Thursday. The US presidency fight is entering the home stretch as the electoral tradition that doesn't have a global peer hits the final 50 days before Election Day. The threats of U.S. presidential elections are expected to be more pronounced in investor decision making when there are now just 50 days until November 3^rd. In commodities, that matters most for gold and silver traders says PrithvirajKothari of RSBL.

With Joe Biden ahead in the polls, Donald Trump has consistently suggested that there will be fraud without proof, claiming mail-in votes would result in theft. That's sparked a tide of chaotic, disputed speculation that unleashes market uncertainty. In recent weeks, Gold 's remarkable, record-setting run has seen its strength wane, even as equities have been rocked by a selloff. The quickly shrinking horizon to Election Day can inject some fresh enthusiasm into the safe-haven, boosting holdings in the ETF.

Why does Silver Outperforms Gold in Bull Market

Silver prices have underperformed gold for most of the time since 2011. In the third week of July 2020 silver prices broke out of the $14 to $20 price range in which they have been caged for the most part since the second half of 2014. After breaking out of this long held range, silver prices raced sharply higher, rising to an intraday high of $29.9 on 7 August basis the nearby active September COMEX contract. If past performance is any indicator, this could be the start of another sharp run up in silver prices. And past performance has been a fairly consistent indicator in illustrating that silver prices outperform gold in a time when gold prices are rising sharply, a gold price rally.

 When using the same dates as gold, silver outperformed gold on every occasion but one (more detailed discussion on this later). When using silver’s troughs and peaks that were close to or ‘in the same cycle’ as the periods of gold price increases, silver always outperformed gold and the percentage gains were also much stronger than when using the other time frame.

There are several reasons why silver often lags gold in starting a major upward price move, but then rises faster in percentage terms. One of the most important is that the silver market is significantly smaller than the gold market. In 2019, for example, the dollar value of the gold market was around 5.5 times that of silver. {The market size for gold and silver is defined here as the summation of annual physical supply (comprised of newly refined mine output, secondary recovery from scrap, and in the case of gold net official transactions in those years when the official sector has been a net supplier of gold to the market), futures and options exchange trading volume, and London Bullion market clearing volumes.}

The top gold dealers of India believes that given the smaller size of the silver market it takes less effort for investors to move the price of the metal higher or lower. The smaller size of the market essentially increases volatility, which while supportive of outperformance compared to gold when prices are rising also adds risk to the performance of silver as a stand-alone asset and to any portfolio in which precious metals are included.

After years of underperformance relative to gold, reflected in the sharp increase in the Gold: Silver ratio, the silver price is now playing catch up with gold. The ratio has slipped lower but is still at historically elevated levels. Furthermore, while the daily gold price broke its past record and already has made several new ones, the price of silver at the height of its current run up on 7 August 2020 at $29.91, still is 39% below its record high in 2011.

The ratio has been at extremely elevated levels in recent years, highlighting silver’s low valuation relative to gold for an extended period of time. In March 2020 the ratio hit a record high. The ratio has corrected from those record high levels but is still at elevated levels, suggesting more potential upside for silver prices relative to gold. It should be understood that there is no magical number at which this ratio should stand. There are no physical, geologic, chemical, electrical, financial, or other reason why gold and silver should be expected to trade at a given relationship to each other.

Gold/Silver Ratio

Sustained dollar weakness is a primary prerequisite for silver beating gold. A greenback bear market would imply some reversion in its top companion for most of the past 10 years -- the U.S. stock market outperforming the world.

Investor sentiment toward silver is turning extremely positive confirmed Prithviraj Kothari of RSBL. This positive investor sentiment is being driven by investors looking for a hedge to the heightened political and economic risks around the world coupled with silver’s relative value to gold. Additionally, the recent break out of silver prices is likely to attract generalist investors looking for relatively undervalued assets to park their funds and the negative yield on the 10-year TIPS certainly makes assets like gold and silver attractive. The upcoming U.S. election, Brexit, deteriorating U.S. –China relations, and the pandemic give further reasons for investors to add gold and silver to their portfolios, which should help sustain the strength in prices.

While silver prices could potentially rise back to their record levels, they may not be able to sustain those high levels for an extended period of time, with some of the shorter term investors locking profits and fabrication demand being hurt by the high price. That said, while prices may not stay at those past record levels for too long and will come off they should not be expected to sink back to the levels experienced in recent years, or even earlier this year, in any hurry. The fallout from the pandemic should help to keep the prices of these metals at elevated levels for a long time.

Gold ETFs attract record inflows in 2020

 

Inflows into gold-backed ETFs have broken all records in 2020, with total holdings reaching an all-time high of 3785 tonnes at the end of July, leaving the value of global assets under management standing at $239 billion. That’s a couple of tons ahead of Germany’s stash. U.S. reserves exceed 8,000 tons.

Global net inflows of 899 tonnes ($49.1 billion) in the year to July are considerably higher than the previous record annual totals and the trend of inflows has continued in the first few trading days of August as the price of gold has breached $2000/oz.

To put these flows and holdings in perspective:

·         ETFs now hold more gold than any one central bank barring the US Treasury.

·         Inflows in 2020 have exceeded the record annual purchases by central banks seen in 2019 of 667t.

·         ETF inflows in the first six months of the year were equivalent to about 40% of new mine supply.

ETF Inflows of last 20 years

There are two principal reasons why ETFs have seen such strong purchases in 2020, both connected to the corona virus.

·         As the global economy tipped into deep recession, falling bond yields – especially negative real US Treasuries’ yields – have driven gold prices higher, encouraging investors to buy gold, sometimes via ETFs.

·         The logistical issues that triggered the dislocation of the COMEX gold futures market from the OTC market centered in London have reduced the attraction of investment on the COMEX futures market, due to increased costs of ownership and higher premiums to the OTC price.

RSBL analysts and investors are so concerned about the global outlook that worldwide holdings in gold-backed exchange-traded funds now stand behind only the official U.S. reserves of bullion after they surpassed Germany’s holdings.