GOLD TRAPPED?

-By Mr. Prithviraj Kothari, MD, RSBL (RiddiSiddhi Bullions Ltd.)

Gold was choppy this week. It was seen moving sideways just before the payrolls data was released. Investors believed that a weak figure would mean that the economy is still fragile and this would underpin gold prices.

Geopolitical tensions in Ukraine have underpin gold prices this week. Spot gold is at $1,350/oz, down 40 cents from its previous close. Spot gold prices rose 1.2% overnight after U.S. President Barack Obama said that Crimea's referendum on seceding from Ukraine to join Russia is illegal and added that the U.S. and European Union are united against Russia's intervention in Ukraine. In case the situation worsened then gold prices are expected to rise.

But the actual scenario was completely opposite.

Gold plunged nearly 1 per cent after US data showed that job growth picked up pace sharply, thus ruling out fears of an economic slowdown. This in turn would meant that the Federal  Reserve would continue to taper its monetary stimulus.

Gold  closed 1% lower on Friday, suffering from their biggest one-day point and percentage loss in more than a week, after a closely-watched jobs report signalled stronger-than-expected employment trends, dulling the metal’s investment appeal.

The Labour Department said that the employers had added 1,75,000 jobs to their payrolls compared to 1,29,000 in January. The unemployment rate, rose to 6.7 percent from a five year low if 6.6 per cent as Americans flooded into the market to search for work. However, many believe that this data could not be valid up to a certain point because of the extreme weather conditions that prevailed last month.

Spot gold fell as much as 1.5 per cent to a low of 1329.35 an ounce and was last seen trading at 1338.09

An optimistic economic data creates such a sentiment in the market that people believe that holding safe haven assets in your portfolio is no longer feasible.

Compared to December and January, February's report was much positive than expected.

While some investors said the January and December reports were distorted by severe winter weather, others worried the weakness was indicative of a broader economic slowdown and would force the Federal Reserve to sustain its stimulus efforts for longer than previously thought. Instead, February's data showed improvement even though winter storms continued to pummel much of the Northeast U.S.

In the short term, what holds more importance than US data is that what happens in Ukraine. On Friday, President Vladimir Putin rebuffed a warning from US President Barack Obama over Moscow's military intervention in Crimea, saying that Russia could not ignore calls for help from Russian speakers in Ukraine.

The other factor that pushed gold prices down, was the data released from China. Data released over the weekend showed that Chinese exports collapsed 18.1% in February from a year earlier, disappointing expectations for a 6.8% increase. Imports rose 10.1%, compared to forecasts for an 8% increase. The significant decline in China’s exports led to a deficit of $22.98 billion last month, compared to a surplus of $31.86 billion in January. Analysts had expected a surplus of $14.5 billion in February.

A separate report showed that consumer price inflation in China rose 2% in February from a year earlier, in line with expectations, while producer price inflation declined 2%, compared to forecasts for a 1.9% drop. The downbeat data highlighted concerns about slowing growth in the world's biggest consumer of the industrial metal. I do feel that there are high chances that the numbers were distorted due to New year holidays observed by Chinese. Recovery should be on its way but we will have to wait for the next set of numbers for more clarity. 

Platinum was seen up for a consecutive week. It gained 2.6 percent, trading at $1477.2 while  silver fell 2.9 percent to $20.82    

In the week ahead, investors will be anticipating what will be closely-watched data on retail sales and consumer sentiment for further indications of the strength of the economy and the future course of monetary policy.

Gold prices are set to rise next week as the yellow metal's trend is expected to remain upward.

The primary purpose of this blog (Prithviraj Kothari's view on Bullion Markets- MD,RSBL (Riddisiddhi Bullions Ltd.)) is to educate the masses of the current happenings in the Bullion world.

- Previous blog -

"2014- An Interesting Start Up For Gold"

http://www.riddisiddhibullionsltd.blogspot.in/2014/03/2014-interesting-start-up-for-gold.html

THE CHANGING CHINA

-By Mr. Prithviraj Kothari, MD, RSBL (RiddiSiddhi Bullions Ltd.)

Amidst all the chaos that has happening at the Global level, I feel we should just relax a bit and understand what gold is really up to. At the current levels, it would be tough to make any short term predictions from Gold or Silver price levels. But lets take a recap and try to work out something...

The yellow metal price by the end of 31st Dec, 2013 ended a 12 year rally which saw trading below $1200.This decline was driven by low interest rates and certain steps taken by the global central banks to foster the world economy. 

But in 2014, gold showed a remarkable re-bounce and touched 1327$ an ounce this week. On Tuesday, gold reached 1332.10, its highest since October. Last week gold gained four percent and this week it followed suit. Thursday too saw gold moving up as dollar gave up gains. By Friday, gold was seen gaining for a third consecutive week on uncertainty over the stimulus measures. 

Gold rallied to a three and half month high earlier this week after reports stated that US economic indicators were disappointing. A report showed that existing US home sales fell more than expected to an 18 month low in January. This sparked speculation that the Federal  Reserve might slow the tapering of its bond purchases.

Expectations that US Federal Reserve would maintain the pace of a withdrawal of monetary stimulus may diminish gold's investment appeal as a hedge against inflation. 

Apart from the FED's QE3 uncertainty, there are various factors that influence gold prices. The general global investment factors, or monetary policy or economic strength. The move to raise the US debt ceiling limit to unspecified limit until next year March will surely support Gold prices.  But lately, the most important factor has been the Chinese demand for gold. This has held up gold prices strongly. The Chinese demand for gold has helped in boosting gold prices at a time when the Fed's monetary stimulus measures have been driving down the prices and the global economy is showing signs of recovery.

Till last year, India was considered the largest consumer of gold worldwide. But according to the World Gold Council, in 2013, China overtook India as the largest buyer of gold. In fact China imported 1066 metric tonnes of gold as the demand for gold bars, coins and jewellery soared 32 per cent to a record high.

*

2014, has just begun and China has already imported exorbitant quantity of gold. This year, the World Gold Council expects China to remain the world’s largest consumer of physical gold. While down slightly from last year’s record level, the research body projects China will still gobble up a robust 1,000 tonnes to 1,100 tonnes of gold in 2014. 

Till 2002, Beijing had barred its citizens from owning gold bars and coins. Even though gold appreciated for a long time in china, the citizens were not able to use it to that extent. but once the government lifted restrictions on gold ownership the Chinese rushed to buy gold and this gave a boost to gold prices.

Moreover, as an economy china has witnessed speedy development. This has also resulted in higher spending power as incomes have risen. Generally, people buy gold as one of the safest forms of investment and also include gold in their portfolios. And given that till 2012, gold has given the best returns in its asset class it's obvious that people are tempted to own it.

The same has happened in China. Though gold dropped almost 25 per cent last year, demand for it from China did not drop and this kept the gold prices moving.

Meanwhile in India, duty on gold that had been levied to rectify the current account deficit has been the major factor for a decline in demand as the precious metal is being sold at very high premiums making the yellow metal even more dearer. The interim budget did not have any changes with regards to Gold import policy or import duty cuts. Gold premium over international price jumped USD 30 on that day.

According to Bloomberg, Silver had its longest daily straight gain since more than 40 years on 18th Feb, after moving higher for 11 consecutive days from 19.08 on 3rd Feb to close at 21.83 on 18th Feb.

Seeing strong physical demand from China and US disappointing economic data, I do feel that Gold price should hover between $1307 to $1360 in the international market whereas in the Indian markets it is expected to be between Rs.30,000 to Rs.31,500. Respectively silver is expected to range between $21.05 and $23.10 and Rs.46,500 and Rs. 48,500.

*goldsilverworlds.com

The primary purpose of this blog (Prithviraj Kothari's view on Bullion Markets- MD,RSBL (Riddisiddhi Bullions Ltd.)) is to educate the masses of the current happenings in the Bullion world.

- Previous blog - "Let's Get Gold"
http://riddisiddhibullionsltd.blogspot.in/2014/02/lets-get-gold.html