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Showing posts with label Europe. Show all posts
Showing posts with label Europe. Show all posts

Monday, 20 June 2016

BREXIT – Unity of Europe challenged: RSBL


- Prithviraj Kothari, MD RSBL



Clearly FED dominated first quarter of 2016 with respect to price movements in precious metals market and specially Gold. Moving here, there are lot of key events that could be considered game changing for Gold and Silver prices.

The June FOMC left the borrowing rates target unchanged while St. Louis Fed president James Bullard said the U.S. economy might need only one interest rate increase through 2018. The Fed's actual pace of rate increases has been much slower than what was mapped out by the committee in the past. This mismatch between what they are saying and what they are doing is arguably causing distortions in global financial markets, causing unnecessary confusion over future Fed policy, and eroding credibility of the FOMC.

Gold prices endured an extremely volatile session last Friday after Thursdays aggressive wash-out, grinding its way higher throughout the European and U.S. days to close out the week on a positive note (+1.6% higher for the week).

The Bank of Japan also did nothing to reassure the markets with a "shock and awe" monetary ease, impotent to act on the eve of Brexit and the upper house Japanese Diet election.

Everyone has been talking of the Brexit and as to how it will affect Gold prices. Those concerns were echoed by policymakers around the world last week. The Bank of England called the referendum the largest immediate risk facing U.K. financial markets, and possibly also global financial markets. Lets have a look as to what exactly Brexit is and how will it affect the financial markets and more importantly what effect it can have on the yellow metal.

WHAT IS BREXIT:
 International policymakers are ramping up their warnings on the dangers of a British exit - popularly known as "Brexit" — from the political and economic alliance that has united Europe for the past four decades. Voters in Britain will decide whether to leave or remain in the European Union in a referendum on Thursday, but financial market volatility has already spiked as polls show a growing desire to abandon the partnership. 

HOW WILL IT AFFECT UK:
The International Monetary Fund on Friday issued one of the direst forecasts to date, calling the impact of Britain's departure from the European Union "negative and substantial." The fund predicted that a Brexit could reduce economic growth by up to 5.6 percent over the next three years in its worst-case scenario. The gloomy outlook is driven by an expected sharp decline in the pound and severe disruptions in trade as the nation is forced to renegotiate deals with countries across the continent, potentially on worse terms.

HOW IT WILL AFFECT GOLD:
Gold is the obvious beneficiary of a dovish Fed, negative interest rates in Germany and Japan and the safe-haven bid to hedge Brexit risk.If Brexit happens then we may see gold trade at $1350 an ounce in the days to come. If Britain does not vote to leave the EU, gold prices could fall to $1220 as an immediate liquidation move.

If Britain leaves EU, the other states would also look for this option and the idea of unified Europe would fail. The challenges are coming at an already weak moment for Europe's economy — and the world's. Europe is still recovering from the series of financial crises that have been roiling countries such as Greece and Italy along with others across the continent. Waves of refugees from the Middle East are spurring political and cultural unrest.

In short, A Brexit would be bad for the U.K., it would be bad for Europe, and it would be bad for the world, and will further add to the current global uncertainties thus sending shockwaves through all financial markets but a positive for safe haven status of Gold.

Thank You!



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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 –

Sunday, 26 October 2014

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

Sunday, 19 October 2014

GOLD TEND TO MOVE SIDE-WAYS

by Mr. Prithviraj Kothari, MD, RSBL



As we just thought gold was acting positive and making a comeback, it proves us wrong by the end of Friday.

Gold erased this year’s gains earlier this month on the outlook for higher borrowing costs as the U.S. economy improves. Bullion has since rebounded as the Fed signalled a worldwide economic slowdown may delay interest-rate increases and as equities to commodities slid.

The week was decent enough for gold in the domestic markets, but then internationally showed a sideways performance.

Internationally, gold prices declined after the U.S data reports were in. The better than expected consumer sentiment data lowered gold's safe haven appeal while on the other hand the ongoing concerns over global economic growth and a recovery in global stock markets gave the yellow-metal some support.

Equities and bond yields dropped sharply and the uncertainty over the Fed's hike in interest rates have changed the sentiment for gold from bearish to neutral. Gold showed mixed trends in the week over various economic figures coming in from US

  • U.S retail sales and inflation numbers slumped
  • Core Retail Sales dipped 0.2%, its first decline since April 2013.
  • This indicated to a decline in consumer spending which one of the key indicators of economic growth
  • PPI fell by 0.1%, after a reading of 0.0% a month earlier
  • US Unemployment Claims dropped to 264 thousand, marking a 14 -year low. 
  • Manufacturing numbers were a mix, as Industrial Production gained 1.0%, its best showing since November. 
  • The Philly Fed Manufacturing Index dipped to 20.7 points, but this beat the estimate of 19.9 points.
So it was quite a volatile market for gold and there were several factors responsible for this volatility.


DISAPPOINTING GLOBAL GROWTH AND MIXED US DATA REPORTS-
The global equity drop was induced by the European equities sell-off, which was prompted by the negative August industrial production data from Germany and the market's disappointment with the lack of further monetary announcements by the ECB to fight deflation and a likely recession in Europe. The September U.S. retail sales of -0.3%, an inflation expectation of 1.5% in 2019, and foreign growth slowdown have fuelled growth recovery concerns in the U.S. The September manufacturing output climbed 0.5% compared to -0.5% in August, which can signal that the U.S. recovery is holding up.


GOLD DEMAND
The global equity tumult and the ongoing geopolitical concerns have raised the appetite for gold even though the inflationary pressure has created a negative attitude for gold.
The U.S. SPDR gold trust holdings have risen 0.20% this week after declining for four consecutive weeks. 

Moreover demand for gold from India has risen ahead of the biggest festive season of Diwali and many have made their purchases at dips. India's September gold imports jumped sharply to $3.75 billion ahead of the wedding and festival season, data from the trade ministry showed.

Meanwhile in China, the world's largest consumer for gold, has witnessed a significant drop in demand for gold even though price are running low but demand here is also expected to pick up. Growth in Gold mine output from China is set to slow significantly in coming years in the face of declining ore grades and waning profitability, an analyst at Business Monitor International said on Friday.

Now we need to see what's in basket for gold in the coming week. Gold could trade sideways next week and multiple factors are expected to influence the price of the precious metal.

FED- markets will keep an eye in the Fed Chair's speech this Friday

US- Traders will be tracking news coming in from the equity markets, alongside news about a likely global slowdown, the future pace of US stimulus, US interest rates, the Ebola scare in the US , the U.S leading indicators index , the U.S September new home sales, the U.S September CPI, September US leading indicators index and geopolitical tensions the world over.

CHINA-Next week, we will monitor the September China industrial production data, the Q3 China real GDP growth.






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 -
"Is Gold Making A  Comeback?"
http://riddisiddhibullionsltd.blogspot.in/2014/10/is-gold-making-comeback.html