GOLD CRASHES BUT LANDS SAFELY: RSBL

 By Mr. Prithviraj Kothari, MD, RSBL

Gold prices have rallied 31.4 percent since the December low at $1,046.40. Safe-haven demand increased due to the following factors:

• The US Federal Reserve proposed in December four rate increases in 2016 but at best it might deliver just one rise before the end of the year
• Its inverse relationship with the dollar index has allowed gold to climb
• The growing number of negative-yielding sovereign bonds has made safe-haven assets that bear no yield much more appealing
• Pro-long utilisation of easy monetary policies by global central banks has eroded the value of paper money
• Speculative funds as well as ETF investors have flocked into gold in search of yield

Though 2016 has been one of the best performing years for gold since 2012 the yellow metal registered its biggest daily drop in three years on last Tuesday and extended losses in the previous session after forecast-beating U.S. manufacturing data and comments from Fed officials saying there was a strong case for raising rates.

Gold fell for the eighth straight session on Thursday, slipping to a four-month low, pressured by a stronger dollar after U.S. weekly jobless claims fell and ahead of key data that could put the Federal Reserve on track to raise interest rates this year.

Gold fell for a ninth straight session on Friday on a stronger dollar ahead of key U.S. jobs data and the metal was headed for its worst weekly dip in over three years on increased expectations of a Federal Reserve rate rise by year end.

Initial claims for state unemployment benefits unexpectedly declined by 5,000 to a seasonally adjusted 249,000 for the week to Oct. 1. The U.S. dollar .DXY rose to the highest in more than two months against a basket of currencies as the data reinforced the view that the Fed would raise rates at the end of the year

This declined gold prices drastically but by the end of Friday gold futures staged a modest recovery amidst all these concerns.

Though the unemployment benefits declined, a slow growth rate was recorded for the third straight month in September. Gold prices got an initial boost from this.

In Europe, the European Central Bank (ECB) intends to push on with its aggressive stimulus policy of negative interest rates and massive bond buying until it is happy with the outlook for euro zone inflation, senior officials said. ECB Vice President Vitor Constancio said a Bloomberg report suggesting that there was already consensus among ECB rate setters to reduce the 80 billion euros ($89 billion) monthly bond purchases was mistaken.

The report aggravated a sell-off in gold on Tuesday as the yellow metal fell over three percent to its worst one-day fall since September 2013. 

In the short term, gold prices might remain under selling pressure. While the metal could consolidate lower and put the bulls to the test, it remains to be seen how long or deep the consolidation process will be. But we remain friendly towards gold – our medium-to-long-term view remains bullish and we could see the metal seeking a strong technical support to rebound into.

But there are chances that gold might trade sideways in the short term keeping in mind the following factors-

• Strained projected longs show that this trade is very much overcrowded. With no fresh buyers, the path of least resistance is downward
• Profit-taking could be a theme and, should panic ensue, panic selling could escalate as speculators and ETF investors are sitting on large unrealised profits
• The bulls’ bounciness has not really been tested and a mild correction/pullback should do the overall bull structure a lot of benefit
• Physical demand has been subdued due to high future prices – the current rally has not had the backing of strong physical up-take
• The Fed has armed its policymakers to prepare the market with combative messages that the US economy is primed for a 25-basis-point-rate rise before the end of 2016

These put a limitation to the bullish trend for gold. Nonetheless as we approach towards the last quarter of 2016 we all hope that it ends on a similar note as its beginning.

The primary purpose of this article by Mr. Prithviraj Kothari is to educate the masses of the current happenings in the Bullion world.

Previous blog:

"Volatile Markets: RSBL"

http://riddisiddhibullionsltd.blogspot.in/2016/10/volatile-markets-rsbl.html

BULL V/S BEAR FOR GOLD: RSBL

By Mr. Prithviraj Kothari, MD, RSBL

So far 2016 has been subjugated by the fall out in Chinese equities and the consequent short selling of other asset classes as a proxy hedge.

Gold continued to rally this week as it gained by the strengthening of the yen which suggests that there is constant safe haven buying which does not fit too well with the pick-up in equities and industrial metals this week.

Gold soared 1 percent on Wednesday, breaking a three-day losing streak to trade above the key $1,200-an-ounce level as Asian shares and the dollar slipped.

Bullion rallied to a one-year high last week after a stock market rout boosted demand for the yellow metal as a safe haven, but has since given up some gains as equities steadied. With stocks slipping again on Wednesday, gold was back in focus.

Speculation has increased in recent days that the Fed might resort to negative interest rates to stimulate the economy after Fed Chair Janet Yellen said last week it was an option that would not be taken "off the table." Lower or negative rates would boost demand for non-interest-paying gold. Concerns remain that gold could correct further as some

Analysts say gold gained too much, too quickly.

The gold price fell during Asian trading hours on Friday after rallying overnight to a week’s high of $1,240.10 per ounce. But see the yellow metal remained well-supported on global economic uncertainty. 

Spot gold was last at $1,226.70-1,227 per ounce, down $3.80 from Thursday’s close.

The gold price had rallied overnight following a pull-back in US equities and weaker oil prices. 

Recently the analysts and market players have become more alarmed about

• The state of the global economy and
• The risk of debt default and
• Equity weakness

Gold’s positive and negative movements over the week were influenced by the following-

Oil Prices- Oil prices had risen more than 14 percent this week after Saudi Arabia, Russia, Venezuela and Qatar said they would freeze oil output at January levels as long as other producers also participate. Iran’s oil minister had welcomed the plan but did not commit to it.

The oil price rally also halted after Saudi Arabia’s foreign minister was reported as saying that Saudi Arabia was “not prepared” to cut production, scuttling hopes of a deal by major producers to cut output in an oversupplied market. 

Global Economic growth- Global economic growth remains friable with the Organization for Economic Cooperation and Development (OECD) cutting its global growth forecast on Thursday by 0.3 percent to three percent for 2016 as it warns of slowing economies in Brazil, Germany and the US, and exchange rate volatility in some emerging markets. 

The OECD on Thursday reports that some emerging markets are particularly vulnerable to sharp exchange-rate movements and the effects of high domestic debt.

Economic Data- Major economic data released on Thursday was mixed with a slight negative bias. China’s January PPI was -5.3 percent, a gentler decline than the forecast -5.5 percent and December’s -5.9 percent. January was the 47th straight month of decline, however. 

Weekly US unemployment claims came in at 262,000, below the forecast of 275,000 and under the psychological 300,000 mark. The Philly Fed manufacturing index for February at -2.8 was close to the -2.9 estimate. 

But the US CB leading index disappointed at -0.2 percent against a forecast of -0.1 percent Meanwhile in data, US CPI and Core CPI month-over-month in January came in unchanged and an increase of 0.3 percent respectively, both were above forecasts of a -0.1 decline and 0.2 percent gain.

Gold Demand- Physical demand slowed during the Chinese Lunar New Year, but global demand is also suffering as consumers and well-stocked jewellery manufacturers hold off while waiting for the price of gold to drop, according to multiple gold traders.

The gold price increased modestly for the third consecutive day as a safe-haven rally is being thwarted by weak physical demand.

Monetary policies- Market participants also await further monetary decisions out of the Eurozone and China, which has drawn closer scrutiny after the Japanese central bank decided to lower nominal interest rates into negative territory for the first time in history.

A lack of inflation and threats of another global recession has led central bankers to adopt looser monetary policy and aggressively combat sagging growth.

Market participants appear content to wait until monetary decisions out of the Eurozone and China become clearer.

The recent decision by the Japanese central bank to lower interest rates into negative territory has led other regions to consider the same action.

A lack of inflation and threats of another global recession are forcing central bankers to adopt looser monetary policy and aggressively combat sagging growth.

Till then we need to wait and watch and this seems to be the only mantra as the mart once again stands divided into a bear v/s bull market for gold.

The primary purpose of this article by Mr. Prithviraj Kothari is to educate the masses of the current happenings in the Bullion world.

- Previous blog -

" Gold Glitters All The Wayl: RSBL"
http://riddisiddhibullionsltd.blogspot.in/2016/02/gold-glitters-all-way-rsbl.html

GOLD GLITTERS ALL THE WAY: RSBL

By Mr. Prithviraj Kothari, MD, RSBL 

As I mentioned last week in my blog that gold is regaining its safe haven appeal, this week we saw this sentiment strengthening further.

Gold was like literally all over the world this week as we saw the yellow metal gaining its safe haven appeal in its true sense after a long wait. Sentiment in the gold market remained sturdy after prices hit a one-year high in a figurative move.

This was the third consecutive week that gold witnessed positive gains, with increasing more than 5.3%- the biggest weekly percentage gain since late October 2011.

Analysts have noted that the yellow metal’s push back above $1,200 an ounce generated a lot of focus and positive sentiment among appalling investors looking for a safe-haven.

Many analysts are bullish on gold, expecting sentiment to continue to grow as prices have broken through key technical barriers, culminating in a weekly high at $1,263.90 an ounce.

Spot gold was last at $1,240.50/1,241.20 per ounce, having rallied around 22 percent since the start of the year.

The gold price rallied to a high on Thursday of $1,263.30 per ounce, up five percent and it’s strongest since February 6 last year when it peaked at $1,268.90.

Since this rally came in suddenly, there were many investors that missed on to bank on the gains. The speed of the rally and its strength suggest many would-be investors have been chasing prices, having not been able to take advantage earlier in the rally – they had lost faith in gold as a safe-haven given the four-year bear market.

This volatility was influenced by more than one factor. It was a combined effort of the following-

Dollar- Sentiment towards gold has changed dramatically, and gold has even moved up on some days in the face of a dollar rally. With a change in sentiment, those underweight or waiting on the sidelines started buying gold which furtherer fuelled gold prices.

The precious metal benefitted from a softer dollar, which had failed to attract safe-haven demand despite the global instability – the currency was last trading at a four-month low at $1.1349 against the euro.

A softer dollar is making gold more affordable for holders of other currencies – it has fallen around four percent this month, having already rallied strongly over the past 14 months – the dollar index climbed to 100.50 in December from around 70 in January last year and was last at 95.58.

Fed- As part of a two-day congressional hearing, Federal Reserve Chairwoman Janet Yellen attempted to reassure markets that US growth was steady and the labor market was improving.

Yellen and her fellow colleagues are being criticized for exacerbating the instability after raising rates in December – rates were static around 0 percent since December 2008.

And the US Federal Reserve, having raised rates in December for the first time in nine years, has not ruled out a push into negative territory. The chances of further rises this year have receded significantly, according to market consensus.

Because gold has no yield, it loses some of its luster when interest rates are rising. But negative interest rates negate this disadvantage while highlighting economic weakness against which gold is historically seen as a hedge and preferred as one of the safest modes of investments compared to its counterpart.

China- since the Chinese markets remained closed for the Lunar Celebration, there was nil reaction from that side and hence gold prices shot up one side.

With China absent from the market for its New Year holidays this week, the market now waits to see the reaction of Chinese investors upon their return on Monday, particularly as the US will be absent on this day for Presidents day.

All eyes will be glued to the return of the Chinese markets as investors are eager to see what they actually bring to the surface post this week’s volatile developments.

Equity- The gold price benefited from the meltdown in equity markets, as the yellow metal continued to hold around one-year highs. Weak equity markets have spooked investors and they promptly dumped risky assets and rushed to gold, which is seen as a safe-haven.

Other Economies-

Uncertainty about global growth and a mass sell-off in global equity markets unsettled investors, burnishing gold’s safe-haven qualities, while Japan, Switzerland, Sweden and Denmark have adopted negative interest rates.

European Central Bank (ECB) president Mario Draghi is expected to follow suit at the bank’s March meeting, citing inconsistent growth concerns and non-existent price increases.

Since the decision, Japan lowered deposit rates into negative territory and European Central Bank President Mario Draghi is expected to implement the same policy as soon as March.

Both economic regions are struggling with poor economic growth and non-existent inflation despite billions in easy money and years of near-zero interest rates.

Negative interest rates are generally good for gold as the improbability and agony linked with negative rates tends to surge interest in gold, but the more distinct shift of monetary policy in this direction by central banks is encouraging even greater flows into bullion.

Although it is a shortened week with markets closed Monday for Presidents Day, the U.S. economic calendar will be busy with the release of regional manufacturing reports, housing sector data, and the release of the Consumer Price Index for January.

While analysts are positive on the gold market, they are not ruling out some weakness at the start of the week.

The primary purpose of this article by Mr. Prithviraj Kothari is to educate the masses of the current happenings in the Bullion world.

- Previous blog -

" Gold Regaining Its Safe Haven Appeal: RSBL"

http://riddisiddhibullionsltd.blogspot.in/2016/02/gold-regaining-its-safe-haven-appeal.html 

GOLD REGAINING ITS SAFE HAVEN APPEAL: RSBL

By Prithviraj Kothari, MD, RSBL

Recently investors have begun flocking to traditional safe-haven assets like gold and eschewing more risky stores of wealth as 2016 has been characterized by frazzled markets and mounting tensions stemming from the global equities rout. 

In recent days, the rally has been driven by erosion in the dollar, which is down to October lows and was last trading 1.2 percent softer at $1.1220 against the euro.

Gold is once again gaining its safe haven appeal as it gets influenced by depressed oil prices and low inflation. These factors are raising concerns over Fed policy expectations and global economic development.

A potential slowdown in the American manufacturing and services industry has created questions over the timing of the Federal Reserve rate hike and target of roughly a two percent fed funds rate by year end.

A majority of market participants do not see a rate hike happening this year, compared to a week ago when consensus was for an increase in July.

Earlier this week, Federal Reserve Bank of New York president William Dudley said that tighter financial conditions would be taken into account at the next Fed policy meeting in March – investors interpreted this as a further delay in a US interest rate hike.

As markets await further news from the Fed, they were also awaiting the US jobs reports to see whether it created a negative or positive impact in the economy.

Trade was volatile following a mixed US employment report, which showed that 151,000 jobs were added in January, missing the 189,000 forecast. However, the unemployment rate did tick down to 4.9 percent and wage growth was strong. December meanwhile was revised down to 262,000 from 292,000.

However, after years of low wages and non-existent inflation, wage growth increased the most in a year at a 0.5 percent gain, besting the estimate of 0.3 percent.

A substantial wage boost shows the labor market is beginning to tighten and it is becoming more difficult for employers to find available workers.

That news along with the reduction to 4.9 percent in the headline employment figure was enough to spur the dollar after it had sunk to the lowest point since October. The greenback last traded 0.8 percent stronger at $1.1127 against the euro.

Gold futures edged higher after trading in negative territory throughout most of the day as a downturn in US equities offset a stronger dollar.

Now it’s becoming clearer that the lows for dollar denominated gold have been seen after an extended, weakening four year bear market. 

The deterioration in the American currency begins as a global equities rout hit all three major economic regions led by fears of a possible US recession and hard-landing in China.

Investors have questioned the timing of the Federal Reserve’s first rate hike and now don’t expect another increase until the second half of 2017, according to the CME Group Fed Watch.

The global macro environment has so far been positive for the precious metals market.

The poor start to the year has investors questioning the timing of the Federal Reserve’s first rate hike, with various Fed members stating the Fed’s policy would monitor and assess financial conditions.

Before the global uncertainty, March was estimated to be the next date for another rate increase as the Fed needed a gradual schedule to reach the target of two percent by year-end.

After weeks of global instability and central banks favoring looser monetary policy, investors have increased their gold ETF holdings, which stood at 1,573 tonnes as of February 2 – a gain of 22 tonnes week-on-week and 92 tonnes month-on-month.

Keeping in mind the global economies, gold prices are expected to strengthen in the near-term, driven by improved spec and investor sentiment, but we do not expect prices to break above the $1,200 psychological level.

The primary purpose of this article by Mr. Prithviraj Kothari is to educate the masses of the current happenings in the Bullion world.

- Previous blog -
'Best Performing Month for Gold since Jan 2015: RSBL"
http://riddisiddhibullionsltd.blogspot.in/2016/01/best-perofrming-month-for-gold-since.html