AN UPBEAT DOLLAR BEATS UP GOLD

- By Mr. Prithviraj Kothari, MD, RSBL

 

As the outlook for the U.S dollar remained upbeat, we saw a bearish sentiment in the market for gold. Many investors expect that an interest rate hike by the U.S Federal Reserve will come sometime in 2015 was responsible for this sentiment. 

The Fed had stated that before it would tighten its policy, after it sees acceleration in wage growth. But at the same time the Fed had also made it clear in the January minutes in recent weeks that rate hikes could occur even if inflation is floundering. For now, as the Fed doesn’t consider the drop in inflation anything more than transitory, it’s unlikely that the wage figures ruffle too many feathers, at least for the U.S. Dollar.

Apart from the interest rate hike, there is also a great deal of uncertainty about the geopolitical and macroeconomic situation and gold continues to react to development in this regards.
The strong greenback has pushed gold prices below the key psychological level of $1,200 an ounce and has pushed the euro to a 12-year low

Both the euro and gold prices remain under significant pressure from the U.S. dollar.
The U.S. dollar has strengthened, particularly against the euro and that is negative for gold.

Though gold ended down for the week, it did show modest gains on Thursday afternoon although in euro terms it struck a near-one-month high following a speech from ECB president Mario Draghi on the bank’s QE programme.

An optimistic Draghi today outlined the ECB’s bond-purchasing plan that will begin on March 9. But he set a floor for bond purchases at the ECB’s deposit rate of -0.2 percent, following questions regarding to the extent to which the central bank will dabble with negative-yielding bonds.

As the week ended, gold prices fell to a two month low on Friday following a strong U.S non-farm payrolls report. Details are as following-

• US total non-farm payroll employment increased by 295,000 in February and the unemployment rate edged down to 5.5 percent from 5.7 percent, which was significantly better than the forecast for the addition of 240,000 jobs and a 5.6-percent unemployment rate.
• Labor reports over the next several months will take on added significance because the Federal Reserve is on the verge of raising interest rates.

This reading put added pressure on the Federal Reserve to raise interest rates in the near term.


By Friday afternoon prices had hit a session low of $1,162.90 an ounce and settled only marginally higher at $1,164.30, down 2.6% for the day. The gold ended the week at its lowest point since Dec. 1, shedding 4% since Monday.
Many cautious investors displayed a large scale pullout, looking for refuge in investment opportunities like stock, assuming bullish prospects for equity markets would continue in emerging markets like India.

Currently investment in equities looks more fruitful. Many investors are seeking shelter under this avenue as it is expected to give better returns than bullion; hence many investors sold their holding in gold to divert funds into equities in markets like India.
The jobs report definitely added fuel to fire for those who are expecting higher interest rates. Gold’s fall today shows that there is faith in the interest rate underpinning the dollar right now.

Strengthening dollar which is trading at its 11 year peak because of optimism in the US economy will be a strong factor for gold prices to come down in this month.

Although most of the market focus will revolve around the U.S. dollar and interest expectations, the two economic reports that will garner investors’ attention are-

•  February retail sales
•  Producer inflation data

The question now on everyone’s mind is just how low gold prices will go next week, in what is a quiet week for U.S. economic data. Most analysts expect that markets will spend most of next week preparing for the Federal Reserve monetary policy meeting on March 18.
Any hike by the Fed, which has kept rates near zero since 2008 to stimulate the U.S. economy, could hurt demand for bullion, a non-interest-bearing asset. If there is no physical demand then the market could be vulnerable.

The current strategy that market players should follow is “BUY ON DIPS”. 

Following trade range could possibly give an idea for the same.

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1130-$1200 an ounce	Rs.25,700- Rs.27,000 per 10gm
SILVER	$15.40-$ 17.00 an ounce	Rs.35,000- Rs.38,000 per kg

“The primary purpose of this blog by Prithviraj Kothari - MD, RSBL, is to educate the masses of the current happenings in the Bullion world.”
- Previous blog -
"Overall A Decent Budget For Gems & Jewellery Industry"

http://riddisiddhibullionsltd.blogspot.in/2015/02/overall-decent-budget-for-gems.html

PRE-BUDGET VIEWS AND SUGGESTIONS

    FDI in Indian Bullion Industry is the key to Growth 

                                                                        by Mr. Prithviraj Kothari, MD – RiddiSiddhi Bullions Ltd.
 

The most discussed topic of this month is the "Budget" and how it will affect the commodities  business. Lately, I have been asked about my views and expectations from this year budget. I would like to put forward the following points-

Expectations are high for a massively reformist Union Budget that would give the somnolent economy the jolt it badly needs.

There are quite a lot of aspects that need immediate consideration for action as the bullion industry has been suffering a lot due to the current norms and practices.

Research & development is the key to the future of Indian bullion industry. Data by China Gold Association (CGA) shows China produced 451.8 tons of gold in 2014, up 5.52% year on year. It has been the eighth consecutive year for China to become the biggest gold producer globally.

Primarily, there is a need for R&D to be carried out in an efficient way in the country, which will increase production of the metal. This will reduce dependency on imports and in turn help the government to increase the forex reserve. As the metal will be extracted locally, customers will be benefitted pricewise, due to local production.
R&D is costly which requires huge investment, but with the help of FDI we can surely work out the way to get the most out of it. In turn, FDI would help in strengthening our rupee and in turn reduce the depreciation of our currency.
We expect the following to be executed immediately and in a short period of time.

a.    GST implementation is a must: If implemented, it is expected to provide a significant boost to investment and growth of the economy. GST will have a significant impact on almost all aspects of businesses operating in the country, including the supply chain, sourcing and distribution decisions, inventory costs and cash flows, pricing policy, accounting systems and transactions management.
We expect a flat 1% GST across India to be levied by the government, which would replace most indirect taxes currently in place. 

b.    Introduction of Option product for Commodity exchange is must: Those who have the exposure should be given an opportunity. It will be a boon for a bullion trader and jeweler. By using this instrument they can hedge their future position and in a way provide the necessary risk cover. An investor will also highly benefit through this instrument. He/she will get a chance to invest in a larger quantity of metal with a lower investment and reap benefits till the expiry date.

Commodity Transaction Tax (CTT) reduces market participation and lowers liquidity.

c.    Allow Depository schemes for bullion industry corporate: Gold Deposit Schemes are offered by banks in which investors deposit gold for a period of certain 3 years earning a fixed rate of interest.  Currently that has been reduced to 6 months. The depository scheme that the banks and MFs are enjoying should also be allowed to corporate, working for bullion industry. It will help to increase the gold reserves and in turn benefit the customers willing to deposit their idle gold. The government should instead harness the existing reserve of gold in our country rather than turning towards imports and implementing alarming hike on custom duty. Hike in the duty on imports will in no way; curtail the demand, as the precious metal has always been regarded as one of the best investment options for social security.

d.    Introduce schemes to convert unaccounted gold to accounted one: Indian households have nearly 25,000 to 30,000 tonnes of Gold. I expect that this budget would show an effective way to gain revenue by exporting it. I would suggest Government of India to introduce schemes like minimum tax scheme wherein an investor is charged minimum tax to convert his/her unaccounted gold into an accounted one. By this the government treasury will also increase and the idle gold can be put to use. The other scheme can be a VDS scheme (voluntary disclosure scheme) by which the Gold /Silver can be brought to the market.

e.    Extend Gold Loan scheme period and LC Tenure: We expect an increase in Gold loan scheme period to extend from 180 days to 360 days and LC tenure from 90 to 180 days. As of now Gold Loan is allowed up to 180 days which implies, a jeweler has to rollover his/her position twice in a year and that in turns leads to increase in imports. If the loan period is extended to 360 days, one cycle of loan will be reduced. A direct effect will be reduction in imports.

f.    NRI’s to be allowed to bring more Gold in India: Currently NRI’s are allowed 1 Kilo of Gold while arriving in India. Earlier this was 10 Kilos. We feel this cap should be raised back to the earlier levels or even more which would help in import reduction and lower the Forex pressure.


“The primary purpose of this blog by Prithviraj Kothari - MD, RSBL, is to educate the masses of the current happenings in the Bullion world.”

- Previous blog -

"Gold Perplexed"

http://riddisiddhibullionsltd.blogspot.in/2015/02/gold-perplxed.html

GOLD PERPLEXED

 - By Mr. Prithviraj Kothari,MD,RSBL

Gold this week was giving confused or rather mixed behavioral patterns as it was being pulled between the bullish and bearish forces.

On Thursday, gold ended at $1,220.70 an ounce, up $1.10 or 0.1 percent, on a weak dollar and some disappointing economic data from the U.S. with retail sales dropping more than expected in January and first-time unemployment benefit claims rising more than anticipated last week.
Though gold was up on Friday, followed by weak US economic data, for the week gold was down 0.6%.

Let’s analyze the bullish and bearish factors that were responsible for this wavelike movement in gold-

BULLISH

Weak US Economic data-  Following Thursday’s reaction, gold was up for a second straight session in Friday.
Gold displayed the behavior post the release of some key reports from US. In some soft economic news from the U.S., a University of Michigan report on Friday showed an unexpected, sharp pullback on its U.S. consumer sentiment index in February, after having reported the index at an eleven-year high in the previous month.

Meanwhile, the Labor Department released a report on Friday showing another steep drop in U.S. import prices in the month of January, attributed largely to falling energy prices.
Additionally, the Labor Department said export prices slumped by 2.0 percent in January following a revised 1.0 percent decrease in December. Export prices had been expected to fall by 0.8 percent compared to the 1.2 percent decline that had been reported for the previous month.

Greece issues- Equity markets were hit by the uncertainty prevailing over Greece’s debt negotiations with its European lenders and its future in the euro zone. This has benefited the bullion markets that were up on Friday as safe haven demand for gold increased.

Greece agreed on Thursday to talk to its creditors about the way out of its international bailout in a political climb-down that could prevent its new leftist-led government running out of money as early as next month.

Increasing gold purchases by official bodies worldwide- Central banks were net buyers of gold for the fifth straight year in 2014, with purchases nearing a 50-year high, in the face of growing geopolitical risk. According to a report released Thursday by the World Gold Council in London, central banks' net purchases of gold came to 477 tons in 2014, up 17% on the year and the second-highest figure ( after 2012) since data were first kept 50 years ago.
.
Other official bodies worldwide namely Russia's Central Bank (purchases exceeding sales by 173 tons ), Iraq’s Central Bank (added 48 tons to its stocks)  also hoarded gold. Official bodies have been net buyers of gold since 2010, when the euro crisis struck. Increasing volatility in the foreign exchange market is stimulating worldwide demand for gold.

India's consumer demand slid 14% to 842.7 tons, as the country raised import duties on gold in hopes of closing its growing current account deficit. In spite of the decline, India returned to the top spot as the world's biggest consumer as the former leader China’s demand for gold slide 38%.

USD-  Gold was firmly supported this week by a frail US dollar. The dollar trended lower against some select currencies after some soft economic data from the U.S. A weakening dollar supported gold by making the commodity priced in the greenback cheaper for holders of other currencies.

French Economic Report- The statistical office Insee reported on Friday that the French economic growth slowed as expected in the 4th quarter. France's gross domestic product rose 0.1 percent sequentially, in line with forecast, but slower than third quarter's 0.3 percent expansion



BEARISH

US interest Rate Hike-  Gold held above a five-week low on Friday amid a weaker dollar and uncertainty over debt-laden Greece, but the safe-haven metal was set to close down for a third straight week on expectations of higher U.S. interest rates.

Euro zone Data- Apart from the Fed’s anticipated interest rate hike, upbeat economic news from the Eurozone has weighed on gold prices all week. Helped by growth in Germany, the combined gross domestic product of the Eurozone was up 0.3% sequentially in the fourth quarter.

Germany’s Economic Data- Germany's economic growth accelerated more-than-expected on domestic spending and exports in the fourth quarter, while investment dragged expansion in France.
German gross domestic product advanced 0.7 percent sequentially- this was the fastest growth in three quarters and also exceeded a 0.3 percent rise forecast by economists.

 SPDR Gold trust- Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, edged down to 771.51 tons on Friday, from its previous close of 773.31 tons.


 Summing it up, markets worldwide await the interest rate hike by the Federal Reserve which is expected to happen sometime this year. Reacting to this, the outlook for dollar remains upbeat despite the recent losses.

Any hike by the Fed, which has kept rates near zero since 2008 to stimulate the U.S. economy, could hurt demand for bullion, a non-interest-bearing asset.

TRADE RANGE-

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1211- 1245 an ounce	Rs.26,500- Rs.28,000 per 10gm
SILVER	$16.55- $18.00 an ounce	Rs.37,000- Rs.40,000 per kg

“The primary purpose of this blog by Prithviraj Kothari - MD, RSBL, is to educate the masses of the current happenings in the Bullion world.”

- Previous blog -
"Trade Range For Gold Remains Tight"

http://riddisiddhibullionsltd.blogspot.in/2015/02/trade-range-for-gold-remains-tight.html

FED SETS THE RULES FOR GOLD

by Mr. Prithviraj Kothari, MD, RSBL

Since December 2008 to June 2011, gold rose 70 % as the Fed bought debt and held borrowing costs near zero percent. 

Last year being the worst performing year for gold, as prices slumped 28 per cent as the markets had expected that the central bank would taper its monthly stimulus program which was the main reason for the spark rise in gold in 2011. 

After spending much of the month bouncing off a triple-bottom low around $1,180 made on Oct. 6, and previously in December and June 2013, gold prices turned weaker and spent the last week and a half drifting lower.  

The U.S. Federal Reserve had dismissed financial market volatility, a slowdown in Europe and a weak inflation outlook as factors that might undercut progress towards its unemployment and inflation goals.

The hawkish comments and the strong economic data dulled gold’s appeal as a hedge. This continued to put pressure on gold. 

Post FOMC, gold dropped more than $20. The market recouped some losses edging back up to $1215, but early London were aggressive sellers, pressuring the market another $20 lower to a low of $1196.50.

Moreover, on Wednesday, The Fed ended its monthly bond purchase program and dropped a characterization of U.S. labour market slack as "significant" in a show of confidence in the economy's prospects. As the Federal Reserve ended its asset purchase program amidst signs of a growing and improving US economy, gold lost its appeal as a safe haven asset and demand to won gold declined. 

Gold is 0.6 % lower in October after losing 6.2 % last month, and the metal during the last session erased the year’s advance as Dollar Spot Index rose to a three-week high. Gold traded USD 1160.85 while Silver and Platinum tested respective support levels of 15.80 and 1220. Gold support for the short term is expected at $1150.

Apart from this, there were few other reasons responsible for the crash in gold and silver prices.

Central Bank Interest Rate - The central bank, which has held its key rate at zero to 0.25 percent since 2008, this week cited an improving job market in deciding to end bond buying, while maintaining a commitment to keep rates low for a considerable time. It also said inflation is running below its 2 percent target.

SDPR Gold Trust- Reflecting bearish sentiment, SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings fell 0.16 percent to 741.20 tons on Thursday, the least since Oct. 2008.

US Data- Precious metals cratered, hit by a double-whammy of the rather hawkish Fed policy statement, coupled with a stronger-than-expected US GDP report. Fed officials this week cited an improving job market in deciding to end bond-buying, while maintaining a commitment to keep interest rates low for a considerable time. 

Dollar- Gold and silver were hit hard after the dollar rose to a near four-week high against a basket of major currencies on Friday, Reuters reported. The greenback got a boost from strong US gross domestic product data and the Bank of Japan’s surprise move to expand its massive monetary easing that weakened the yen.

Bond Buying Program- Gold was languishing near a three-week low on Thursday after the U.S. Federal Reserve ended its bond-buying stimulus program and expressed confidence in the economic recovery, dimming bullion's safe-haven appeal.

Lack Of Support From Asian markets- Gold failed to get any support from the Asian physical markets, a factor that could likely push it to further lows. Physical demand usually provides a floor to dropping prices.

China's factory activity unexpectedly fell to a five month low in October as firms fought slowing orders and rising costs in the slow moving economy.

Buyers in top consumer China failed to emerge despite the drop below $1,200. Gold of 99.99 percent purity on the Shanghai Gold Exchange - the main platform for physical trades in the country - sank as much as 3.1 percent to 230.05 Yuan per gram ($1,172.35 an ounce), the lowest level this year, Bloomberg reported. Volumes tumbled to a one-month low on Friday.

    

For the coming week, gold is expected to be influenced by any comments coming in from the ECB and also any important data cropping from the October U.S nonfarm payroll report. Following Thursdays GDP growth reports news, the Federal Reserve is more upbeat on the labour markets and the Federal Open Market Committee meeting to be held on Wednesday expects a strong data report. This may make the bearish sentiments strong for gold.

TRADE RANGE

METAL	INTERNATIONAL Gold/Silver price range	DOMESTIC Gold/Silver price range
GOLD	$1150 - $1200  an ounce	Rs.25,500 - Rs.26,750  per 10gm
SILVER	$15.00 - $17.00  an ounce	Rs.34,000 - Rs.37,500  per kg

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 Once Again Surrenders In Front Of Gold"

http://riddisiddhibullionsltd.blogspot.in/2014/10/gold-once-again-surrenders-in-front-of.html

GOLD ONCE AGAIN SURRENDERS IN FRONT OF THE DOLLAR

by Mr. Prithviraj Kothari, MD, RSBL

Firstly, on behalf of RSBL, I would like to wish you a very Happy and Prosperous New Year. We hope that this new Hindu Year brings in optimism in your life along with the precious metals market industry, other investment assets and the world economy.

Gold prices reached to three session highs by Monday lunchtime in London. Gold prices touched $1246 an ounce which is considered to be a crucial trading range for gold. Thanks to last week stock rally, gold prices gained as European stock markets reversed half of Friday's big bounce.

Let's have a look at some market making news that happened over the week:

• The U.S. dollar is up  5 % this year against a basket of 10 leading currencies. 
• The country’s unemployment rate is at a six-year low, suggesting the world’s biggest economy will survive slowdowns in Europe and ⦁ Asia. 
• The European Central Bank plans to stimulate growth by buying asset-backed debt, aimed at boosting the ECB's own balance-sheet by €1 trillion in a bid to avoid deflation for the 18-nation currency zone through monetary stimulus.
• Economists cut estimates for Chinese growth after disappointing data on industrial profits, factory output and credit. Chinese central bank will inject short-term loans into major banks this week drove Beijing's 1-year money market rate down to 2.99% – its lowest level in 25 months .
• The global economy was further threatened over the spreading Ebola virus threatens the global economy further.

Gold prices recovered on Thursday, and was seen trading around $1232-$1233. Post the US data release, investors once again were confused between gold and equities as the dollar rose and safe haven demand for gold declined. Gold prices fell to a one-week low at $1232.55 per ounce on Friday in London as safe haven demand was eroded after a rebound in US equities and a strengthening dollar.

Even when the US economy is showing signs of strengthening, Investors have plenty to be concerned about: Russian-inspired insurrection in Ukraine, Occupy Central protests in Hong Kong, the spread of Ebola from Africa to Europe and the U.S., war in the Middle. One thing they can leave off the list: inflation.

Whereas FED shall ponder on the below 2 points:

1) QE (Quantitative Easing): The Fed has bought $3.95 trillion of securities since 2008, a program called quantitative easing, or QE. The Fed official are worried about prices remaining too low as the cash that is currently there in the financial system has raised worries about incipient inflation.

The Fed’s bond-buying program, which the central bank plans to end this month, appears to have succeeded in stimulating the economy without debasing the currency because banks are holding onto reserves instead of lending. Falling prices, or deflation, can create a vicious circle of less spending and declining wages.

2) Consumer Spending: Low wages and low spending on consumer products will also keep a lid on inflation.

This was a snapshot of the world scenario. 

But where domestic markets are concerned, this year too gold sales shot up during the 5 day festive season. Tuesday being Dhanteras, gold demand was quite high as it is considered auspicious to buy gold on this day. Gold purchases in India gathered pace since Tuesday as consumers took advantage of a year-on-year drop in the price of the metal at the most-auspicious time to buy it. The prices seem to have dropped at the right time and markets saw people rush to buy gold at dips.

Now the international and domestic markets will have their eyes glued on the Fed policy makers meet scheduled on October 28-29.

TRADE RANGE

METAL	INTERNATIONAL Gold/Silver price range	DOMESTIC  Gold/Silver price range
GOLD	$1208- $1247 an ounce	Rs. 26,750- Rs. 27,800 per 10gm
SILVER	$16.85- $17.64 an ounce	Rs. 38,000- Rs.40,000 per kg

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 Tend to Move Side-Ways"

http://riddisiddhibullionsltd.blogspot.in/2014/10/gold-tend-to-move-side-ways.html