Uncertainity Prevails

 Gold prices began rallying in 2019 and reached an all-time high of US$2,000 an ounce in mid-2020. Since then, the yellow metal has consolidated around US$1,800 an ounce.  Before the consolidation, gold was declared as one the best performing assets of 2020. It surpassed the S&P 500, global treasuries, international and emerging market stocks, as well as commodities and oil.

Gold began the year with disdainful expectations on the back of a record high and its biggest annual gain in a decade. Instead, the precious metal is off to its worst start in 30 years.

Gold had a strong start to the year, moving to its monthly high of $1,959 per ounce on 6 January at the same time the U.S. dollar index (DXY)1 made fresh three-year lows. However, gold quickly reversed course as it became clear the democrats had won a runoff election in Georgia, which, with the help of a democratic vice president, gave them control of the Senate. With this crucial victory, the markets quickly embarked on a “reflation trade”, betting that the democrats would pass trillions of dollars of additional spending on pandemic relief, infrastructure and green initiatives. Interest rates spiked higher, taking ten-year treasuries to a ten-month high of 1.18% on 12 January. The rise in rates bolstered the U.S. dollar, driving the DXY to its monthly high on 18 January, while gold fell to its monthly low of $1,804.

February witnessed similar behaviour for the yellow metal. Spot prices touched a seven-month low on Friday, extending a fall and penetrating through a support level that analysts say could signify further losses. 

Gold gained in 2020 mainly over the following-

• pandemic-induced haven buying
• low interest rates 
• stimulus spending

However, this year gold is suddenly facing a series of unexpected and uncertain hindrances. Mainly-

• resilience in the dollar 
• a rally in U.S. Treasury yields 
• Global  economic recovery from the pandemic 

With rates going higher and inflation expectations peeking out, we’re seeing a lot of profit-taking in gold and people are going from gold into other investment options confirms analysts from RSBL.

However, RiddiSiddhi Bullions Limited is confidents and still believe prospects for rsbl gold coins and bullions to make a comeback, betting that the inability of governments and central banks to normalize stimulus policy will see it climb again. Currently the Federal Reserve has kept additional stimulus and interest rates on hold.  So, some analysts still believe that the metal continues to remain an investors favourite for the time being. 

The outlook for gold is challenging as yields rise and a general risk-on tone across markets impacts safe haven demand. The surprising resilience of the USD is at the core of this drop in investor appetite, and profit taking has emerged following gold’s strong start to the year. 

While gold is seen as an inflation hedge, higher inflation expectations have pushed yields up, increasing the opportunity cost of holding non-yielding bullion.

Gold should still benefit from continued loose monetary policy and low real interest rates this year. 

The recent rise in yields suggests that some investors are starting to anticipate a tightening of policy sooner than anticipated to accommodate a potential rise in inflation.

There is a cycle that finds correlation between a series of events. Let’s have a look. With central bank support removed, bonds usually fall in price which sends yields higher. This can also spill over into stock markets as higher interest rates means more debt servicing for firms, causing traders to reassess the investing environment.

As we know that uncertainties are bound to continue in the economic environment, we would not advice reducing your gold exposure. In fact, any form of uncertainty promotes bullish sentiment thus compelling investors to own gold and add resilience to their portfolio.

Gold continues to look attractive

When gold rallied, majority of the market layers jumped into the bull’s band wagon. Now that gold is showing bearish sentiments, analysts and traders have revised their forecasts for gold, but nonetheless still expect prices to recover from current levels. There are some who even believe that gold will reach new highs this year. 

Gold has benefited from action by central banks to slash interest rates and pump cash into the economy, which raises the threat of inflation and reduces returns on bonds, a competing asset class. But while global economic recovery may weaken the dollar, helping gold by making it cheaper for buyers outside the United States, it also is likely to raise bond yields, making gold less attractive confirms top gold dealer RiddiSiddhi Bullions Limited.

Gold has always been perceived as a safe place to store wealth, as a hedge tool and as a safe haven asset, owing to this gold was seen touching record highs of $2072.50 as the world was hit by the pandemic.

But as news of successful vaccine rollout was out, gold prices started dipping. A vision of positive and gradual economic growth, compelled investors to diversify their money into others assets likes equities that generally shoot up over economic growth and boom.

Lately also gold was significantly influenced by the price movements of other asset forms.

Benchmark U.S. Treasury yields rose to their highest levels since March on Friday, while inflation expectations edged up to a six-year high.

Higher inflation boosts gold but also lifts Treasury yields, which in turn increases the opportunity cost of holding bullion.

The week opened with dampened trades due to the holiday After Presidents Day Holiday on Monday, in the US, the Dow Futures indicated +244points gain, on sizeable stimulus with senate hope.

China is closed due to the Lunar New Year break. The Chinese Holiday will be in progress for another two more days and hence data inflow will be low.  But US retail sales data for Feb and PPI will be key at 7.00 pm IST. Gold trying to take out $1815-1820 barrier and, in the meanwhile, silver moved to $28 which is eluding since last week. US markets on life highs and ending the run up on Covid relief funds coming from Biden’s admin. 

U.S. President Joe Biden pushed for the first major legislative achievement of his term on Friday, turning to a bipartisan group of local officials for help on his $1.9 trillion coronavirus relief plan.

U.S. Treasury Secretary Janet Yellen on Friday urged G7 finance leaders to “go big” with additional fiscal stimulus to recover from the COVID-19 pandemic.

Physical gold demand eased last week in India as volatility in domestic prices put off buyers, while interest for silver remained strong in Singapore and Japan.

Retail Sales data will likely be our biggest data point, and focus will be on the discussion of minutes from the most recent FOMC meeting, released on Wednesday. The lack of scheduled data doesn’t presuppose a calm market, of course. Presuming the second impeachment trial of Donald Trump is wrapped up (or close to it) by Tuesday, all eyes and effort will be on the efforts to pass the Biden administrations COVID-19 rescue package.

We expect gold to perform well in 2021, although at a slightly more subdued rate compared to 2020.

News packed week for gold

 Gold cracked towards the low of November, where postmodern vaccine, it was sold out to $1767. Now the situation is slightly different since U.S Job situation has been improving gradually. New stimulus package in the US will help sustain jobs and economic growth. That’s why gold slipped and we need to address caution says most of the top gold dealers in India. But before that, markets were also waiting for the key jobs numbers. 

The Friday US Jobs report was pretty worrisome for the policy maker. The payrolls for Jan 21 was 49K against expectations of 85K and the unemployment rate shot up to 6.3 % as the low profile job additions were high. Still the Nov and Dec 2020 negative adjustment was not showing a healthy sign on job situation. Its impact was seen largely on USD index which tumbled from 91.65 to 90.9. 

Last Friday, the US employment report showed a smaller than expected increase in jobs across the country, raising concerns of a slowdown in the labor market that could potentially impede recovery in the world’s largest economy following the coronavirus crisis. 

The disappointing figure sent the US dollar lower after it had touched a two-month high over the past few sessions, helping boost gold prices.

Spot gold rose 0.1% to $1,813.99 per ounce and U.S. gold futures gained 0.2% to $1,816.50 during Monday’s trading session. 

The dollar fell from an over two-month peak on Friday after a U.S. jobs report indicated a slow recovery from the impacts of the COVID-19 pandemic. A weaker dollar makes gold cheaper for holders of other currencies believes analysts from RSBL.

The employment report on Friday showed job losses in manufacturing and construction, two sectors which have been propping up the economy.

U.S. President Joe Biden and his Democratic allies in Congress forged ahead with their $1.9 trillion COVID-19 relief package on Friday.

Early on Monday, gold prices are on the rise on the back of a disappointing employment report which brought back worries about the pace of economic recovery in the US and weakened the US dollar. 

The weaker jobs report also supported the safe haven appeal of gold as it further highlighted the weakness caused to the US economy by the coronavirus pandemic, which remains ongoing despite the rollout of vaccines. Key sectors of the economy, manufacturing and construction, suffered the most severe job losses.

Prices were also climbing higher on the back of improvement in demand for physical gold among consumers in China and India. The upcoming Lunar New Year holiday in China has spurred sales of gold while Indian retail consumers spent more on gold after its domestic rates slid lower.

Another significant factor that triggered gold was Bitcoin. The BC bulls got an electric jolt to the upside when it was just announced that Tesla has invested $1.5 billion in Bitcoin and that the electric vehicle maker will incorporate Bitcoin into its operation. Gold prices also pushed higher about the same time the Tesla news came out.

This week can show significant movement in gold as Wednesday is a packed day, as Fed Chair Powell will also be speaking about the labor market at a webinar hosted by the Economic Club of New York. Later that evening, the U.S. Federal Budget Balance will be published, while on Thursday, initial jobless claims numbers will be released.

Gold prices are the cusp of a breakout or stalling at the low $1,800s this week, depending on U.S. inflation data and a speech by Federal Reserve Chair Jay Powell that could set the tone for longs trying to find their feet after last week’s shake-up in the yellow metal.

Any of these data releases, along with Powell’s speech, could determine the direction and velocity for gold this week

Union Budget 2021- its a 10 on 10

Presenting the Union Budget 2021-22, Finance Minister Nirmala Sitharaman announced that the custom duty on gold and silver will be rationalised to bring them closer to previous levels.

Gold and silver presently attract a basic customs duty of 12.5 per cent. The custom duty on gold has been reduced from 12.5 to 7.5% which has pleasantly been beyond expectations. 

RSBL Gold dore bars and silver dore bars will attract customs duty of 6.9 and 6.1 per cent, respectively, as opposed to the existing rates of 11.85 per cent and 11 per cent respectively. These items will also attract Agriculture Infrastructure and Development Cess at the rate of 2.5 per cent.

While gold and silver will attract agriculture infrastructure and development cess at the rate of 2.5 per cent and social welfare surcharge of 10 per cent. Including the GST, the total tax on gold and silver would be around 13.75 per cent, which was at 15.50 per cent, earlier

Since the duty was raised from 10 per cent in July 2019, prices of precious metals have risen sharply. To bring it closer to previous levels, custom duty on gold and silver has been rationalised. 

As far as post budget reactions are concerned, gold prices plunged over Rs 2,100 on Monday after the Union Finance Minister Nirmala Sitharaman announced the changes in customs duty rate for precious metals. 

The reduction in duty has been warmly welcomed by the entire jewellery and bullion industry as it will result in an increase in physical demand for the yellow metal (which has been dampened due to the pandemic) and at the same time it will compress down illegal gold importing channels.

Further more , income tax assessment has been reduced from 6 years to three years. This will reduce the burden on the tax payers.

Analysts from RiddiSiddhi Bullions Limited feel that the government has given its best and introduced many good schemes, which will work in the favour of the Indian economy. Lot of money has been pumped in to the economy for revival and sustainability. We will witness a significant growth and developments in the form of infrastructure, jobs, industrial development.etc

The much awaited budget during the pandemic has lived up to the expectations as the government has tried from all sides to push economic growth and development.

For people at RSBL the budget is a sure shot 10/10 as players across the sectors has been quite satisfied with the new policies and its spill effect was seen on the equities markets as it rose high