All Eyes On Important US Data - RSBL

Last week gold witnessed a series of whipsaws as traders are being dependent on US data releases. Gold swung into action in the range of 1900-1950 $.

Gold was little changed on Monday as investors awaited U.S. inflation data that could influence the Federal Reserve’s policy stance, 

The Labor Department’s employment report on Friday showed the U.S. economy added the fewest jobs in 2-1/2 years in June, but persistently strong wage growth pointed to still-tight labour market conditions.

Bullion prices have dropped more than 7% since reaching near-record levels in early May as investors scaled back expectations of an end to the Fed’s rate-hiking cycle.

Gold prices edged higher on Tuesday as the dollar and bond yields fell ahead of U.S. inflation data that could offer more cues on the Federal Reserve’s rate-hike path.

Longer-dated U.S. Treasury yields fell on Tuesday as investors awaited Wednesday's inflation data for further clues on whether price pressures are abating and if the Fed is closer to the end of its rate-hiking cycle.

Sticky inflation is widely expected to attract more rate hikes from the Fed, with the central bank set to raise rates by at least 25 basis points in an end-July meeting.

Higher interest rates dull the appeal of gold, which pays no interest

Recent comments from Fed officials reiterated that while the central bank was close to reaching its peak interest rates, interest rates will still rise in the near-term. U.S. rates are also expected to remain higher for longer.

While the prospect of an eventual end to the Fed’s rate hike cycle buoyed gold, higher-for-longer rates are expected to keep any further gains in the yellow metal limited, given that they increase the opportunity cost of holding bullion.

We favour the downside in gold and silver, but suggest traders avoid selling palladium. However, the control of the precious metal markets sits with outside markets, with the dominating force determined by which market (dollar or US interest rates) exhibits the biggest price moves.

The focus this week will be on U.S. CPI (Consumer Price Index) data due on Wednesday after last week’s Fed minutes showed a vast majority of the policymakers expected further policy tightening.There is a massive eye on tomorrow's inflation data - it comes too late in the day for the July meeting. That hike is basically sealed and it would take something pretty weak on the inflation side to change that.

Dampened Demand For Gold Over Rate Hike

Last week gold ended  with a nearly 0.35% gain at $1,989.65, failing to close above $2,000 throughout the week. Concerns about rising inflation continued after 1Q A core PCE QoQ and 1QA GDP price Index came in higher than expected.

These damp sentiments continued as the week opened. Gold prices moved little in early Asian trade on Tuesday, hovering well below key levels as anticipation of a likely interest rate hike by the Federal Reserve supported the dollar and dented demand for the yellow metal.

Federal Reserve’s policy meeting due in 2-3 May this week remains each investors focus. The Fed is widely expected to deliver another 25 basis point rate hike on Wednesday amid strong US economic data and persistent inflationary pressures. Data showed that US consumer sentiment improved in April, while core PCE inflation exceeded forecasts in March.

But there is uncertainty about rate hikes and markets are not sure whether the central bank will signal a pause in its gold rate hike cycle.

This has kept demand for gold limited, given that rising interest rates push up the opportunity cost of holding non-yielding assets.

Bullion is known as a hedge against inflation and economic uncertainties, but rising gold rates tend to diminish demand for the zero-yielding asset.

Markets were also watching for a potential U.S. debt default, especially as a deadline for the government to raise the debt limit approaches. Treasury Secretary Janet Yellen warned of a potential default by as early as June 1.

Gold has struggled to hold the $2,000 an ounce level for nearly three weeks, as the yellow metal consolidated gains after surging to near-record highs earlier in April.

The short term and near term future of gold , is both uncertain and indecisive 

The next 18 months will be especially risky as the U.S. embarks on the 2024 election season

The political timetable of the election cycle between now and the 2024 elections in the United States and Taiwan will likely lead to more push-the-limit anti-Chinese aggressive foreign policy from the US. 

Fears of the Fed, coupled with a stronger dollar and yields will continue to see limited safe haven demand for gold, even as concerns over a U.S. banking crisis were renewed by the emergency takeover of First Republic Bank.

The future path of the yellow metal is likely to be determined by the Fed’s stance on interest rates,  any new developments in the banking crisis, important decisions before the election campaigns and most importantly the US China ties.  

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

BULLION MARKET HIGHLIGHTS- DECEMBER 2015- AUGUST 2016: RSBL

 By Mr. Prithviraj Kothari, MD, RSBL

AS 2015 came to a close, most traders expected that 2016 would be a year subjugated by a series of Fed rate hikes.

 

That belief strengthened in late-December 2015 after the Fed delivered on its promise – and raised interest rates for the first time in almost a decade.

 

In a widely telegraphed publication called the "Dots Plot", the Fed signalled that it would continue to normalize its monetary policy, and raise interest rates by a total of +1% through 2016 to a target of 1.375%, a "gradual" pace and in line with earlier forecasts.

Though gold was expected to be bearish on 2016, it showed upward prices movements and The World Gold Council attributed this rally to three principal factors:

• the widening landscape of negative interest rates in Japan and Europe;
• the devaluation of China's Yuan; and
• The realization that the Fed was bluffing on hiking the Fed funds rate, and wouldn't dare take any action that could knock the stock market lower ahead of the upcoming November elections in the US for Congress and the Presidency. 

While we are a few months away from the year end I would like to throw light on a few key highlights that influenced the bullion markets worldwide.

Fed Hike- on 4 January 2016, San Francisco Fed chief John Williams said he saw a steady campaign of interest rate rises. "There are still pretty significant headwinds" facing the US economy from weak overseas economies, the strong Dollar and housing related issues, Mr.Williams told reporters.

 

 

On 6 January, Fed deputy Stanley Fischer warned the markets could expect three to four increases in the Fed funds rate this year. Speaking on CNBC television Fischer warned:

"If asset prices across the economy – that is, taking all financial markets into account – are thought to be extremely high, raising the interest rate may be the suitable step."

Based on expectations of 4-Fed rate hikes to 1.375% by year's end, gold initially declined in the month of December to a six year low at $1054 per ounce. Most analysts expected the downfall to continue through 2016, but they were proved wrong.

 The price of gold suddenly surged 16% higher in the first quarter alone. Giving gold one of its strongest quarterly performance in nearly three decades.

SPDR- The world's largest gold-backed exchange-traded fund, SPDR Gold Shares (NYSEArca:GLD), surged in its holdings to the most in six years, jumping to 983 tonnes, and global gold holdings in ETFs topped 2,000 metric tonnes for the first time since June 2013 following the Brexit fallout, when gold buying sparked even more gold buying.

 

BOE-  On June 30th, Bank of England chief Mark Carney said the economic risks from Brexit had started to crystallize, and he hinted at a resumption of QE, lifting gold to its biggest one-day surge in years after Britons shocked markets by voting to leave the European Union, driving investors toward safe-haven assets such as bullion.  Gold soared as much as 8 percent to its highest in more than two years in the week ending 28^th June, 2016 after the UK referendum results, sending investors rushing for protection. Gold prices surged to its highest level in more than two years, at $1,359 since March 17, 2014, sending shock waves across markets.

BOS- by June 2016, all of Switzerland's government debt, including its 30-year bonds, started trading at negative yields.

 

In all, a record US$11.7 trillion of global sovereign debt has dipped to sub-zero yield territory. This has only strengthened the rally in gold, and about $13-14 billion of money has made its way into gold exchange-traded funds (ETFs) as asset managers moved from fixed income into gold earlier this year.

 

Gold climbed to a two-year high at $1371 per ounce in July, convincing UBS Group to predict that gold is probably at the beginning of its next bull run

BOJ- gold's spectacular rally found a stiff roadblock at the $1370 per ounce area when Japanese government bonds suddenly began to fall sharply into their worst sell-off in 13 years. On August 2nd the Bank of Japan shocked the markets and rattled gold traders by keeping its bond purchases steady, defying expectations it would buy even more.

 

 

Gold traders became even more nervous after the BoJ said it would re-evaluate its Negative Interest Rate and QQE policies in September. Some investors see the policy review as a tacit admission by the central bank that after more than three years of massive money printing, the BoJ could be ready to start tapering the pace of the QQE liquidity injections.

 

   

Since the $10.4 trillion bond market in Tokyo is at the core of the negative interest rate world, if the BoJ begins to allow Japanese bond yields to climb by tapering its QE scheme, it could continue to rattle the price of gold – at least on a short-term basis.

BoJ policy makers ordered staff to make a "comprehensive assessment" on the impact of its easing program and negative interest-rate policy ahead of the next policy-setting meeting on 20-21 September. Some traders suspect the review is aimed specifically at assessing the effectiveness of negative rates, potentially giving policy makers scope to declare the exercise unsuccessful.

So for the month to come, BoJ will surely have something crucial for gold in store.

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:

"Higher Gold Prices For The Domestic Market: RSBL"

http://riddisiddhibullionsltd.blogspot.in/2016/08/higher-gold-prices-for-domestic-market.html

RSBL honoured with “BEST BULLION DEALER IN COIN (GOLD/SILVER)” AWARD by IBJA

I am glad to announce that RiddiSiddhi Bullions Ltd. (RSBL) was honoured with prestigious “Best Bullion Dealer in Coin (Gold/Silver)” Award for the year 2015, by India Bullion and Jewellers Association Ltd.(IBJA)  on 1st December 2015.

The event was held at Hotel Sahara star, Mumbai and the award was given by the hands of famous astrologer Pandit Rajkumar Sharma.