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Showing posts with label European Union. Show all posts
Showing posts with label European Union. Show all posts

Wednesday, 21 March 2018

Gold - An Investor's Favorite

It seems that after years of under performance gold is here once again to glitter. In one sense, gold is doing what it’s supposed to do. Widely regarded as a safe haven, gold is counted on to provide stability during times of stress. By holding firm as other asset classes were thumped, gold successfully fulfilled that role.

Regardless, ETF Securities’ Gold says that it’s not the short-term movements in gold that matter; the yellow metal really shines as a safe haven during prolonged market downturns.

Gold prices have been trading in the range of $1,100-$1,400 an ounce since 2013, after hitting the levels of more than $1,800 in 2011.  On Thursday, international spot gold was at $1,319.13. Going forward, the macro theme of higher inflation and interest rates is expected to continue and that would provide underlying support for gold.


Gold prices ended Friday at their lowest level in just over two weeks, generally tethered to the dollar this week yet supported by persistent global political and trade tensions given the metal’s haven-asset status.

However, Friday’s “trading action indicates that the impact of political turmoil is fleeting and that investors’ primary focus remains on the economy and monetary policy,”
There are many influential factors that create bullish sentiments for the yellow metal in the near term. Let’s have a look at them.

Gold ETF’s- If we look at investment flows so far this year, for the first time in many years, money is flowing into broad based commodities indices. The ETF [Exchange Traded funds] comes with the whole specter, that indicates the diversification aspects as they move from potentially higher inflation or interest rates scenario and this money is going into precious metals through ETF.

The increased allocation that we have witnessed over the past few years in ETFs as a safe haven or diversifies has been increasing and that will further support gold prices.

Rate Hike - Higher inflation and interest rates have been always supportive of the yellow metal, which is often seen as a hedge against any increase in the consumer price index. Rate hikes has been the best buying opportunity for gold during the past 2 years, since the present cycle has been ongoing. So long as we don’t see any accelerated cycle of rate hikes in the US, gold is going to perform reasonably well. We are buying gold as a hedge against inflation, geopolitical uncertainty, against worries about stocks markets, and all these drivers are still there,” Hansen said.

Economic Data - The market has been confined in a relatively tight range and so, gold market-timers looking for a buy signal need a clearer bearish sign. U.S. economic data Friday, ahead of next week’s Federal Reserve decision on monetary policy, showed February housing starts were down 7%, while industrial production for the same month jumped 1.1%. Consumer sentiment in March hit 14-year high. If the US overheats, and that would lead to worries about disinflation or deflation, we would see a bigger correction in stock markets, and that would have a positive impact on gold.

Demand from India and China - Gold’s qualities make it one of the most coveted metals in the world and a popular gift in the form of jewelry. From the beginning of the Indian wedding season in September until Chinese New Year in February, the price of gold tends to rise due to higher demand from the two biggest consumers of gold, China and India.

Global economic conditions - current economic conditions make an even greater case for gold. The stock market is still on a historic bull run, and the tax reform bill is helping ratchet up share prices. It’s important to remember that the precious metal has historically shared a low-to-negative correlation with equities. For the past 30 years, the average correlation between the LBMA gold price and the S&P 500 Index has been negative 0.06.

US political issues - Traders in the financial market have been weighing the potential for more turmoil in the Trump administration. Media reports said the president was planning to sack his national security adviser H.R. Mc Master, which would be the second high-profile firing from the White House this week. Secretary of State Rex Tillerson was fired on Tuesday and replaced with Central Intelligence Agency Director Mike Pompeo.

Trade war - While personnel issues unfold, concerns over a possible trade war between the U.S. and key trading partners were still weighing on investor’s minds as well, analysts said. The White House said on Wednesday it will seek to trim the U.S.’s trade deficit with China by $100 billion, using tariffs. The European Union, meanwhile, was working to get the bloc exempt from the tariffs.

Since markets strongly believe that gold is here to stay, it has once again become an essential part of an investor’s portfolio due to its history as a protector against inflation.

Gold has also performed competitively against many asset classes over the past few decades. This makes the metal, we believe, an appealing diversifier in the event of a correction in the capital markets.

Tuesday, 21 November 2017

Rally vs Regression for Gold

It was a decent week for gold as it was up 0.6 per cent on Friday posting a second straight weekly gain.

Gold rose on Friday as the dollar softened on uncertainty about the progress of what would be the biggest overhaul of U.S. taxes since the 1980s.

The U.S. House of Representatives approved on Thursday a package of tax cuts, while a Senate panel advanced its version of the legislation that has President Donald Trump’s backing. The dollar weakened against a basket of six major currencies and was set for its biggest weekly loss in more than a month.


An exhaustion of the equity market is proving to be supportive for gold in the near future.
Though the week ended on a positive note, Monday blues were creating its effect on gold.Gold drifted lower through the early European session on Monday and eroded part of Friday's strong up-move to one-month tops.

Gold eased on Monday due to a stronger U.S. dollar, but remained near a one-month high hit in the previous session on uncertainty over progress on a potential overhaul of the U.S. tax code.

Currently trading around the $1290 region, testing session lows, a modest pickup in the US Dollar demand seems to have prompted some profit-taking off dollar-denominated commodities - like gold.

However,following factors we seen triggering a fresh wave of risk aversion trade in the market-
Breakdown in German coalition talks- The dollar index, which tracks the greenback against a basket of six rival currencies, gained 0.2 percent as the euro faltered after German Chancellor Angela Merkel’s efforts to form a three-way coalition government failed, raising concerns over political uncertainty in the euro zone’s largest economy.

Sliding US Treasury bond yields- The latest US political jitter from subpoenas on Trump campaign staff and skepticism over the passage of a historic US tax cut legislation might continue to lend support and help limit deeper losses, at least for the time being.

These factors combined have underpinned the precious metal's safe-haven appeal.

Currently gold is once again been pulled between bullish and bearish markets.A little bit of momentum is sneaking in this market and, a little bit of volatility is slinking up in other financial markets.

If we see the ear market for gold , we can support a price drop keeping in mind the US interest rates, higher US interest rates with the target range for the Fed Fund rate likely to be moved up by 0.25% to 1.25%-1.50% at the next Federal Reserve meeting on December 13.  US interest rates are also expected to be hiked another three times next year, adding more downside pressure on gold.

On the other hand, a strong bull market is supported by the fact that Gold is starting to regain its safe-haven shine as political upheaval increases and investors become more risk-averse. Venezuela is on the verge of default after missing payments on sovereign debt and bonds issued by the state-owned oil firm PDVSA, while Zimbabwe is gripped by yet another political crisis after President Robert Mugabe was placed under military custody while the army took control of the streets of Harare.

And in a sign that investors are starting to pare back on risk, investors are shunning high-yield bonds.

In absence of any major market moving economic releases, investors would keep a close eye on the US tax reform developments. Meanwhile, broader market risk sentiment and the USD price dynamics would remain key determinants of the commodity's movement at the start of a new trading week.

Monday, 1 August 2016

Gold and Silver prices on RISE: RSBL

                                                                                      - Mr. Prithviraj Kothari, MD RSBL




Precious metals price rise is eminent and it ended the week on a positive note post poor US data released. The negative data sent the dollar tumbling, stimulating a good recovery for the yellow metal and its white counterparts.

Data released from the US was as follows:
  • GDP data out of the U.S. disappointed on Friday, growing at a seasonally and inflation adjusted +1.2% during Q2 (exp: +2.5%) as business inventories contracted for the first time since Q3 2011
  • The University of Michigan’s consumer sentiment index dropped to 90.0 in July (exp: 90.2) from 93.5 in June as both current and future conditions declined.
  • The poor data countered the Fed’s statement that the US economy is stable and the near-term outlook is positive. Even though the unemployment rate is around five percent, the policy-board has been ineffective at spurring inflation or consistent wage growth. All eyes were on this meeting as something crucial was expected to happen regarding the interest rate hike. But negative data has postponed this hike and this gave gold the push. 
Apart from the US there was news that came in from other economies which affected the gold price: 

U.S Dollar:
Major downturn in the dollar created by the release of second quarter US GDP where it plummeted to 95.38 around the lowest mark since mid-June, before staging a modest uptick to 95.60.

Japan:
Host of new data releases and a Bank of Japan decision to inject further stimulus, markets were directionless this week with volatility and volumes continuing to drift lower. The Bank of Japan (BoJ) decided to adopt a minor adjustment to the existing monetary policy by increasing its purchases of exchange-traded stock funds to 6 trillion yen and expanded its dollar lending programme to $24 billion but kept its policy rate unchanged at -0.1 percent while maintaining the pace of government bond purchases.

The BOJ certainly doubled purchases of exchange-traded funds (ETFs) and said it will “conduct a thorough assessment of the effects of negative interest rates and its massive asset-buying program in September.”

The bank was considering a $265 billion package, part of which would target low-income citizens in another attempt to boost inflation and weak wage growth.

This can be understood as- either the central bank may feel that Japan’s economic growth needs very, very extensive stimulation and they have yet to formulate an appropriate plan or it can be interested that they want to see how the chips fall in eight weeks and move cautiously from there.

India:
Coming to the domestic markets- India being one of the largest consumers of gold, but currently the demand for gold isn’t intense. Frankly speaking, very few people want to invest in gold at this price. Buyers, it seems, feel that the current price is not sustainable and hence, they wait for a correction. Gold price in India is governed by two major factors: global economic conditions and the movement of rupee against the dollar. Both factors have contributed to the current price rise. While global economic conditions continue to pose a greater risk by the day following fluctuating recovery trend in the United States, Britain’s exit from the European Union (BREXIT) and other geopolitical tensions. On the other hand, Indian rupee has depreciated against the greenback despite reports of good inflow of dollars.

Since BREXIT, spot gold price jumped rapidly but, stayed elevated. Also, rainy season is considered as a lean period for gold purchase due to the lack of festivals, weddings or any other occasions during this season. Also, consumers have faced two subsequent years of deficient monsoon rainfalls. Although, the current year has seen normal rainfalls yet its distribution continues to remain uneven. Also, the crucial rainfall month – August – is yet to come. So, let’s keep our fingers crossed for the Kharif sowing and harvesting this year. In case of normal monsoon and its even distribution, Kharif crop would bring some cheers for farmers with higher output which would translate proportionate increase in gold demand.

In India, therefore, standard gold is available at Rs. 31,300 per 10 grams approx. Gold price may touch $1400 in near future in the international markets which will translate in rupee term at Rs. 32,500 per 10 grams. While the uptrend continues there could be some profit booking.

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.

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