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Showing posts with label Federal Reserve. Show all posts
Showing posts with label Federal Reserve. Show all posts

Friday, 6 October 2017

September proves to be the worst month of 2017 for gold so far

September was an action-packed month, with North Korean rockets and a succession of monster hurricanes all coming at the markets almost at the same time. Not forgetting the comments coming out from the Federal Reserve that contributed to thefrenzy by giving a clear signal of a December rate hike. In the process, it perhaps single-handedly helped the dollar index recover from a three-year low hit earlier in the month.

Amid a resurgent dollar, the month of September proved to be worst for gold since November 2016. However, as geopolitical tensions soar, with the standoff between the U.S. and North Korea probably topping the list, demand for precious metals surged with Gold ETF holdings rising most since Feb 2017.



Last week, gold prices ended lower on Friday as weak U.S. consumer spending and inflation data did little to alter expectations for a third interest rate increase by the Federal Reserve this year.
The dollar has risen in recent weeks as investors grow more optimistic about the prospect for U.S. rate hikes and tax cuts that some expect to boost the U.S. economy.

Data on Friday showed that
U.S. consumer spending barely rose in August.
Inflation also remained sluggish with the core personal consumption expenditures price index rising 1.3% year-on-year, slowing from 1.4% in July.
The core personal consumption expenditures price index is the Fed’s preferred inflation measure and has a 2% target.

The data did little to temper rate hike bets after Yellen indicated earlier in the week that the central bank was sticking to plans for a third rate hike this year and three in 2018.

The metal recorded its biggest monthly decline so far this year in September, despite netting a quarterly rise of nearly 3 percent partly due to geopolitical tensions including North Korea’s missile tests.

The U.S. currency recorded its best week of the year on Friday, despite benign inflation data for August, as expectations that the Fed would raise interest rates again in December loomed large after Fed Chair Janet Yellen said the central bank planned to stay on its current rate hike path.
Higher interest rates tend to boost the dollar and push bond yields up, weighing on greenback-denominated gold

The dollar’s rise paused on September 28 and 29, but was seen gaining momentum on Monday morning.

Gold slipped to its lowest in nearly seven weeks early on Monday, 2nd October as the U.S. dollar rose and equities gained, while growing expectations for a Federal Reserve interest rate hike in December also added to pressure.

Spot gold was down 0.3 percent at $1,274.90 an ounce by 0353 GMT, after earlier touching its lowest since mid-August at $1,273.55.

Gold prices fell in Asia on Monday as the dollar gained and the euro dropped as investors mulled the implications of the disputed referendum on Catalonia independence in Spain on the euro zone and a sentiment survey out of Japan in a thin trading day with China's markets shut for the week and holidays regionally expected to see thin flows.

Elsewhere,The Bank of Japan released its Tankan survey for the third quarter with investors focused on the large manufacturer’s index as it rose to 22, compared with an expected reading of 18.

This week, comments by Fed Chair Janet Yellen will be closely watched for further hints on the timing of the next rate hike along with Friday’s U.S. jobs report. Market watchers will be looking ahead to remarks by European Central Bank President Mario Draghi on Wednesday.

Gold, silver and platinum prices continue to correct and the stronger dollar and lull in tensions over North Korea, seem to be weighing on prices. We would let the corrections run their course, but the North Korean situation is likely to escalate again at some stage, so the next rally in gold prices may not be that far away.

Tuesday, 19 September 2017

Wait, Watch and Then Work

In 2016, gold was seen climbing 6% from $1050 to $1150 and another 10% gain during the first half of this year, in July and again in early August, gold prices dropped down to $1210, before rallying back up both times to $1290 and $1350 per ounce respectively. This back and forth price action has some investors worried if this is a real bull market in gold or yet another flash in the pan for the coveted yellow metal?

Reasons being more than one, Investors arereturning to gold again to prudently diversify their stock-heavy portfolios.  That’s very bullish for gold, as investment capital inflows can persist for months or even years.  This shift is most evident in the yellow metal.



There are a couple of issues pushing and pulling at the market. The reaction to the missile launch last week has been a bit negated by that better-than-expected (US) inflation number.

Spot gold slipped on Friday, shrugging off North Korea's latest missile launch over Japan, with strong US inflation data raising the spectre of another interest rate hike.

Let’s have a look as to how each factor was responsiblefor this wave like movement in gold prices.

North Korea - North Korea fired a missile on Friday that flew over Japan's northern island of Hokkaido far out into the Pacific Ocean, South Korean and Japanese officials said, further ratcheting up tensions after Pyongyang's recent test of a powerful nuclear bomb.

US Data - Geopolitical risks can boost demand for safe-haven assets such as gold and the Japanese yen. The yen slipped against the dollar on Friday, after earlier having risen on the news, with the greenback supported by strong US consumer inflation data.

Gold pared losses after data on Friday showed U.S. retail sales unexpectedly fell in August and industrial output dropped for the first time since January due to the impact of Hurricane Harvey.
Friday's numbers were in contrast to strong U.S. inflation data on Thursday which increased prospects of an interest rate hike in December.The Fed's next monetary policy meeting begins on Sept. 19 and now the marketis increasingly focusing on the Federal Reserve and its probability of another rate hike this year.

The Fed has a 2 per cent inflation target, and a series of subdued inflation readings have dampened expectations for further rate rises in the near term. Firming inflation could support the case for another rate hike. Interest rates tend to boost the dollar and push bond yields up, putting pressure on gold.

ECB - Gold fell on Friday after a European Central Bank official called for scaling back the bank's stimulus programme; although losses were capped when weaker than expected U.S. economic data raised questions about further rate hikes.

ECB board member Sabine Lautenschlaeger made the most explicit call so far from an ECB policymaker for paring the bank's 2.3 trillion euros money-printing programme.

Data showing that euro zone wages grew at their fastest rate in two years in the second quarter bolstered the case for reining in ECB stimulus.

This was rather a bad news for gold because this continues the trend of the market pricing in the normalization of monetary policy.

But he said there had already been plenty of headlines about the ECB planning an exit from its bond buying and the U.S. Federal Reserve reducing its balance sheet after its big quantitative easing programme.

Those "normalisation" actions by central banks tend to drive rates higher, push bond yields up and put pressure on gold, a non-yielding asset.

Summing it up, though the previous week saw gold moving like a see saw; the focus now shifts to the important FOMC meet due on 19th September. Wait, Watch and then Work would be the only trading tip for the time being.

Saturday, 9 September 2017

Gold steady ahead of Sept. FOMC Meet

After rising for 3 days, gold prices weakened globally and on the domestic front too on weak global cues and easing demand by local jewellers.

Trump reached a surprise deal with Democrats on Wednesday to raise the short-term US debt ceiling, reducing concerns over a potential government shutdown and denting safe-haven demand.


President Donald Trump on Wednesday warned that the US would no longer tolerate North Korea's actions but said the use of military force against Pyongyang will not be his "first choice".

Gold stabilised early on Thursday, sustained by a weaker dollar and enduring concerns over North Korea, as markets awaited the outcome of a European Central Bank (ECB) policy meeting.

Spot gold was little changed at $1,334.06 per ounce during Thursdays trading hours, after easing 0.3 per cent in the previous session.

The dollar edged down against the yen on Wednesday, pushed back toward a recent 4-1/2-month low by the simmering tensions over North Korea and by comments from a Federal Reserve official about subdued US inflation.

Following suit, the dollar remained submissive on Thursday and the euro stood firm ahead of the ECB meeting where President Mario Draghi is expected to start laying the groundwork to withdraw monetary stimulus.

Currently, the escalating geopolitical tensions are bringing a rally in gold prices and the chances of the unrest rising further are high. If North Korea does another missile test, it will trigger risk-off trade thus proving to be of further help to gold.

The market is likely to continue focusing on geopolitical tensions, but it will start to shift focus to the Federal Reserve meeting in September, looking for details on reducing the balance sheet.

The two-day Federal Open Market Committee meeting (FOMC) is due to begin on Sept. 19 and the US central bank is widely expected to leave rates unchanged.

This could create some plunging pressure on gold starting next week and a rebound in the dollar for a short term.

Monday, 14 August 2017

Fundamentals for Gold are strong

As we have noticed in the past months, it was mainly the dollar and Fed actions that were influencing gold prices. But last week geopolitical tensions were fueling gold prices.

Gold was on the move in the past week after a display of threat of the military force by the U.S. and North Korea pushed the safe-haven metal back onto investors' radar.

President Trump said on Tuesday that threats by the Hermit Kingdom would be met by "fire and fury," which was followed up a day later by a North Korea threat to bomb the U.S. territory of Guam.
The yellow metal climbed to $1,285/oz as tensions rose this week, the best level in about two months, driving year-to-date gains to around 11.5%.




Gold has always been considered as a safe haven asset in times of uncertainty. The current rally in gold prices is because of the rise in safe haven demand for gold.

President Donald Trump intensified up his orotundity toward North Korea and its leader on Thursday, warning Pyongyang against attacking Guam or U.S. allies after it disclosed plans to fire missiles over Japan to land near the U.S. Pacific territory.             

Gold prices rose early Wednesday amid rising tensions between the United States and North Korea after the North responded to warnings from U.S.

President Donald Trump with a threat to strike the U.S.territory of Guam.   

Though prices rose on Wednesday and Thursday, by the end of the week, prices more or less stabilized. 

Gold prices held steady after touching their highest in more than two months on Friday, as rising tensions between the United States and North Korea triggered safe-haven buying.

Geopolitical risks can boost demand for assets considered safe-haven investments, such as gold. Although more hostile magniloquence between the U.S. and North officials would temporarily boost gold prices, we see outright military action as unlikely and upward pressure on gold prices stemming from the confrontation as limited.

Meanwhile, a lower-than-expected rise in U.S. consumer prices in July suggesting benign inflation could persuade a cautious Federal Reserve to delay raising interest rates until December.                

Gold is seen being stable over easing out of the geopolitical tensions. But still, a minor escalation over the tensions can once again trigger gold prices. Hence the situation currently is quite unpredictable. 

On the other hand, The Fed expects "very weak" U.S. inflation to rebound thanks to a slide in the dollar and to a labour market that keeps getting hotter, one of the Fed's most influential officials said in comments that reinforce its gradual policy-tightening plan

Gold edged down from two-monthhighs on Monday, 14th August, , as the dollar inched up from last week's lowsand investors kept a close watch on any developments on tensionsover the Korean peninsula.

Summing it up we can say that though the threats from the Koreans have lowered, the fundamentals for gold still seem to be strong.

Monday, 24 July 2017

Chances of interest rate hike in near future fade

Initially gold began on a negative note. Gold witnessed a decline in prices till mid-week.
However by the end of the week gold prices picked momentum and closed on a positive note.
GOLD BULLION headed for a second weekly gain versus the falling Dollar Friday morning in London, trading at $1247 per ounce as the US currency held at its weakest in 14 months against the Euro.

The greenback faced a fresh barrage of assaults on the currency markets. June retail sales figures and inflation levels disappointed, and this led to a selloff of USD. Headline inflation plunged more than forecast, and retail sales reversed course.  Hence, sentiment towards the USD declined
Gold and the rest of the precious metals were up by an average of 0.3% during trading hours on Friday July 21, with spot gold prices at $1,246.44 per oz, a weaker dollar and continued choppy political waters in Washington providing support.



By Monday, 17 July, the greenback was trading near 10-month lows. Further, news reports of improved economic performance in China sent investors scampering away from the USD towards other assets. Safe-haven assets such as gold, silver, platinum, and the JPY and emerging market currencies gained favour as the USD retreated.

Gold’s rebound found new drive on the combination of the weaker dollar, which we think stems from the weak political scene in Washington and from the less hawkish US Federal Reserve stance.

A weakening dollar along with hawkish Fed comments strengthens gold prices as gold is generally preferred as a mode of investment in times of uncertainty and global turmoil.

It is clear that the US economy is not performing as expected. This naturally dampens expectations and results in weakness for the USD. When traders get antsy, they rush towards safe-haven assets such as gold bullion, and this is precisely what we are seeing now.”

The dollar index continued to fall, at 94.00 it has set a fresh low, these levels were last seen in June 2016. A negative impact on the USD is good for gold. Since bullion is a dollar-denominated asset, demand moves in the opposite direction to the strength of the USD. With weakening sentiment about the USD, foreign buyers of gold purchase more per unit of their currency. Plus, the perceived weakness of the USD drives traders to gold bullion.

With softness in inflation figures, members of the Federal Open Market Committee (FOMC) are reluctant to move forward with additional interest rate hikes. It is more likely that the Fed will opt for an unwinding of its $4.5 trillion balance sheet than more rate hikes this year.

If data continues to be negative and if the third-longest [economic growth] cycle in US history cannot produce a cyclical uplift in wages and prices then gold prices are expected to rise tremendously as any large disappointment in the [global economic] growth story will lead to an increase in gold prices.

The appeal of gold as an insurance asset is greater today than it was at the beginning of the year. It suggests to us that gold continues to be viewed as a [portfolio] diversifies and this should help keep the market supported overall.

The latest economic data releases once again bring the prospect of a Fed rate hike into question. According to the CME Group Fed Watch Tool, there is a 3.1% probability of an interest rate hike on Wednesday, July 26, 2017. For September 20, 2017, the probability of a rate hike is just 8.2%, and for November 1, 2017 the probability of a rate hike is just 11.6%. These economic forecasts are good for gold. Every time the Fed pushes back the prospect of a rate hike, currency traders take a bearish perspective on the greenback which further drives the demand for gold.

Monday, 17 July 2017

Dovish Fed Comments positive for Gold

It’s quite strange that 10 days back the key influential factor that pulled gold prices down was responsible for the rise in gold prices in the past 5 days. Yes rate hike!!!!.

The precious jobs reports brought mixed sentiments for gold traders as there wasn’t really anything in this number which was going to put the brakes or fasten an interest rate hike.

But what played positive for gold was the statement realized by Fed Chairman, Janet Yellen post the data released on Friday.



The surge in gold prices came after a Friday report on consumer prices showed that inflation in June came in flat, a sign that consumer prices had trouble sustaining its upward momentum. A weaker-than-expected reading for June’s retail sales, which fell 0.2%, also signal led weakness. Economists polled by Market Watch had forecast a 0.1% increase. Market participants said the lack of spending from U.S. shoppers made it difficult to envision inflation approaching the Fed’s 2% target.

Gold prices on Friday marked the highest finish of the month and their first weekly rise since early June, as data on retail sales and inflation stoked concerns that the pace of economic growth may not merit lifting U.S. interest rates again in 2017.

U.S. consumer prices were unchanged in June and retail sales fell for a second straight month, pointing to tame inflation and soft domestic demand that diminished prospects of a third interest rate increase from the Federal Reserve this year.

The U.S. data bolstered expectations that the U.S. Federal Reserve would likely to move slowly to continue raising interest rates in the absence of inflation signs. Some had been expecting another rate hike in 2017, however Fed Chair Janet Yellen's comments to the U.S. Congress this week was more dovish than originally anticipated.

Activity was muted ahead of a speech by US Federal Reserve Chair Janet Yellen later in the day which could give clues on the Fed's attitude towards inflation, and on when the US central bank will start reducing its $4.5-trillion balance sheet. That would likely push up bond yields, boosting the opportunity cost of holding bullion, and pushing gold lower.

But, in a testimony to the Congress, Federal Reserve Chairman Janet Yellen had signal led a gradual approach to future rate hikes, which pushed down the dollar and boosted the appeal of the precious metal.

The disappointing U.S. retail sales and inflation data has now seen the odds of another rate hike fall below 50% this year which  has further boosted the appeal of low- and non interest-bearing assets on a relative basis, hence the  market witnessed  breakdown in [the U.S. dollar/Japanese yen] and breakout in gold.

The latest economic data may be viewed as providing insufficient support for the Fed to lift interest rates at least once more in 2017 and shrink its $4.5 trillion balance sheet—an act that can also serve to lift rates and tighten economic conditions.

The next big thing for traders is the upcoming ECB monetary policy  meeting to be held on July 20 in Frankfurt and that certainly has an ability to bring another episode of taper tantrum. 

Monday, 10 April 2017

Gold being pulled between uncertainities and rate hike

Gold is often used as a hedge against political and financial uncertainty and security risks. And that’s exactly what’s happening with gold currently.

Gold hit a five-month high on Friday after U.S. jobs data dampened expectations that the U.S. Federal Reserve will raise interest rates, but the metal gave up most gains as the dollar rose and safe haven demand ebbed.



Spot gold rose 1.2 percent to $1,265.95 an ounce by during trading hours on Friday, after touching its highest since Nov. 10 at $1,270.46,putting it on track for a fourth consecutive week of gains. U.S. gold futures climbed 1.1 percent to $1,267.60 an ounce. This is the most supportive environment we have seen for gold in some time given that there is geopolitical tension and disappointing U.S. payrolls number.

Data released showed that U.S. employers added the fewest number of workers in 10 months in March, boosting gold, which is most attractive to investors in a low interest rate environment.
Gold was also underpinned by investors looking for safety after the United States fired cruise missiles at a Syrian air base, escalating tensions with Russia and Iran.

Russia, a staunch ally of Syria, said relations between Washington and Moscow had been seriously damaged by the strike, which was in retaliation for a deadly chemical attack on a rebel-held area of Syria.

The precious metal hit a 5-month high as investors sought safe-haven assets after the United States launched cruise missiles against a Syrian air base, potentially escalating tensions with Syrian allies Russia and Iran. U.S. President Donald Trump unleashed the military strikes in response to a deadly chemical attack on a rebel-held area, a U.S. official said on Thursday.

Later in the session, however, safe haven demand faded and the dollar index. DXY climbed to three-week highs which further rose questions that unless the geopolitical risk continues; will the sentiment remain positive for gold?

Investors were cautious ahead of the meeting between U.S. President Donald Trump and Chinese President Xi Jinping, but Trump said on Friday he had made progress in talks and expected them to overcome many problems. Investors had already been on edge as Trump met Chinese leader Xi Jinping on Thursday for talks over flash points such as North Korea and China's huge trade surplus with the United States.      

Gold is often used as a hedge against political and financial uncertainty and security risks. It has benefited alongside other assets considered safe, such as the yen and U.S. Treasury bonds.
Though geo political uncertainties are creating room for gold to rise, we shouldn’t ignore the key influential factor for gold i.e. U.S. interest rate hike.

Increases in U.S. interest rates will prove too much of a headwind for gold prices. As such, we think that the price of gold is likely to fall from about $1,265 today to $1,050 by the end of the year if there is any news coming in from the Fed regarding hike in interest rates.

Clearly this raises the stakes and we expect to see gold prices continuing to push higher in the short-term, at least until there is some clarity around whether this is a one-off or develops into something more.

Tuesday, 14 March 2017

The sentiments for Gold are bullish

Gold prices have fallen 5.3% from the end of February high and they have almost given back 50% of the December to February gains

Gold prices slipped towards week low on Thursday as investors awaited the employment report due on Friday, a factor that would unofficially strengthen the interest rate hike in the FOMC meet next week.


Gold’s latest pull down followed the release of better-than-expected US private jobs data midweek, boosting the dollar ahead of the release of official monthly payrolls figures on Friday.


  • Private employment, which excludes government agencies, rose by 227,000 after a 221,000 increase the prior month. It was the biggest gain since July. Construction jobs, which can fluctuate depending on the weather, rose by 58,000, the strongest in almost a decade, and followed a 40,000 increase in January. Manufacturing payrolls gained 28,000, matching the most since August 2013. Meanwhile, retail positions fell by 26,000, the most in four years.
  • The ECB held its benchmark refinancing rate at 0% and left the pace of its bond purchases unchanged on March 9th, as widely expected. Both the deposit rate and the lending rate were also left steady at 0.4% and 0.25%, respectively.
  • The number of Americans filing for unemployment benefits went up by 20000 to 243000 in the week ended March 4th 2017, slightly above expectations of 235000.
  • 2008 Nonfarm business sector labor productivity in the United States increased at a seasonally adjusted annual rate of 1.3 percent during the fourth quarter of 2016, following a downwardly revised 3.3 percent rise in the previous period and below market expectations of a 1.5 percent gain.


While unseasonably warm weather may have boosted the payrolls count, the data represent President Donald Trump’s first full month in office and overlap with a surge in economic buoyancy following his election victory. The figures also corroborate recent comments by Federal Reserve officials that flagged a likely interest-rate increase this month.

Bullion’s being pulled back down toward $1,200 an ounce in the worst losing run since October as positive US economic data underpinned expectations that interest rates could probably be raised several times this year, starting with a hike next week.

After raising rates just a single time in 2015 and also in 2016, the pace may quicken this year. The so-called dot plot from Fed policy makers shows an expectation for three increases this year, and last Friday, Yellen dropped hints the bank might end up having to hike them more than planned in 2017.

After Wednesday’s upbeat private payrolls data, markets were pointing towards more than 90 % chances of rate hike in March meeting; gold prices are likely to face the weakness amidst the strength in the dollar. Separately, the weaker CPI released from China is also likely to put pressure on gold, given the fact that gold is considered as a hedge against inflation.

Gold prices slipped on Friday, building on a loss for the week as better-than-expected U.S. employment data backs the likelihood that the Federal Reserve will decide to boost interest rates at its meeting next week.

Higher interest rates lift the appeal of holding dollars. That also means that a stronger dollar cuts the worth of holding non-yielding gold that’s priced in this denomination.

We see this sell-off as tied into the increased chance of a US rate rise next week. Looking further out, sentiments for the yellow metal are bullish.


Monday, 12 December 2016

Gold appeal Fading

Gold hitting newer and newer lows have been a current trend confirming a bearish view on the metal’s safe haven appeal. Reasons begin with:

  1. Death of uncertainties and acceptance of the same as a new norm.
  2. Central banks of the world getting their ticks right to push the economic growth via fiscal and monetary measures.
  3. Physical buying cushion; getting softer.
  4. Massive reduction in geopolitical tensions with UN forces keeping a check on the extremists.



The upcoming FED meeting will give a glimpse to the US economy getting strengthened. Almost a 100% prediction for a Rate cut in this meeting has put a downward pressure on Gold. Over the course of 2017, there is an expectation that interest rates would be raised by the US Federal Reserve.
Meanwhile, US Dollar has gained a lot of attention due to a rise in US treasury yields and US equity markets causing a downward spiral in Gold prices.

Furthermore, if the recent election outcomes and market reactions to them have taught us anything, it’s that nothing is certain in politics, the global economy and the markets. While I say this, I do understand that the investors have used recent Gold rallies to unwind existing long positions and this is treated unhealthy for an asset’s performance.

While domestic prices would be supported by the Rupee weakness, overall Gold in Dollar terms would trader in the range of US$ 1,080 to US$ 1,200, while Silver would trade in the range of US$ 14.70 to US$ 18.20. In Rupee terms a range of INR 28,200 to INR 29,700 is expected for Gold while INR 39,000 to INR 44,000 is expected for Silver.

Monday, 6 June 2016

Gold prices Rise: RSBL


                                                       - Mr. Prithviraj Kothari, MD RSBL

                           
 
Just when Gold was raising questions on its recent rally, last week’s labour report proved to be a saviour for the yellow metal. Gold prices traded sharply higher in Friday thus giving a technically bullish weekly high close to gold.

In May, the US non-farm workforce grew up only 38,000, missing the forecast of 160,000 and indicating that the US recovery may be starting to slow. Additionally, the March and April figures were revised 22,000 and 37,000 lower respectively while growth in average hourly earnings last month of 0.2 percent was below the predicted 0.3 percent. The Labour Department report released Friday showed employers added jobs in May at the slowest pace since 2010 as unemployment dropped to 4.7 percent, already reaching the level Fed officials expected to see by the end of 2016. Apart from disappointing headline NFP (nonfarm payrolls) number, there is a also a sharp jump in involuntary part time workers.

A much-weaker-than-expected U.S. jobs report prompted the yellow metal to surge higher, and those initial solid gains have been extended to show gold trading over $30 higher on the day. A sharp drop in the U.S. dollar index also helped push gold prices higher.

A broad slowdown is troubling for the Federal Reserve, which has grown increasingly hawkish in recent weeks following the April meeting minutes, giving their support to a rise in interest rates as early as this month if data warranted such a move. But a negative jobs report has once again left the markets perplexed per se the rate hike.

Considering the pliability of the US economy, has once again raised some questions about the momentum of growth and about the outlook. This in turn takes June off the table for a Fed hike.

Apart from the current news what needs to be watched this week for gold are:
  1. THE MAIN EVENT: Fed Chair Janet Yellen's speech today at 10.00 pm.  
  2. Central Bank (Rate Cut) Watch:
  • Reserve Bank of Australia (June 7) no change expected
  • Reserve Bank of India (June 7) no change expected
  • Reserve Bank of New Zealand (June 9) 0.25% rate cut expected

Sentiments for gold are bullish and the major turning pint for this sentiment is the US dollar. Gold could remain in rally mode through the coming week as traders reassess their U.S. dollar and Fed outlook.

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 –

Tuesday, 29 March 2016

RSBL: Why Gold is still cheap?

                                                                             By Mr. Prithviraj Kothari, MD, RSBL


Before jumping onto the main topic, I would like to essay out some facts about Gold prices this year. (Assuming Silver prices have more or less followed Gold prices). I am sure; lot of people would be feeling that US$60 is a big decline for Gold prices in the recent weeks and few would even have increased their bearish bets against the precious metal. I must warn them by quoting that even after the recent decline; the precious metal is nearly 16% up from its lows.

Then why there is a decline?
1.  The U.S. central bank surprised markets last week by cutting its rate hike projections more than expected, down from four to two in 2016, citing the potential impact from weaker global growth and financial market turmoil on the U.S. economy. This led to a rally in the U.S. dollar index and in turn bearish for the metal.

2.  There was a brief safe haven status which Gold gained due to the attacks in Brussels.

3.  Throughout the last week various Fed members including Patrick Harker, the Philadelphia Fed president,  have come out in support of raising interest as soon as April – if the economic conditions were to move.

4.  One more reason is the Easter Holidays, where I would see the profit booking in the Gold prices is quite understandable.

Now coming to the main topic: Why Gold is undervalued according to me?
1.       Reducing the number of rate hikes from 4 to 2, clearly states that FED isn’t sure how the world economy would fare in the longer run. Even when US economy has been showing some positive economic numbers, they are unable to take the most obvious step and when the inflation picks up faster than the central bank expects, they would have to increase the rates quickly.

2.       A dovish Federal Reserve, a weaker U.S. dollar and negative real interest rates will all be positive for gold this year. Over the recent years, the most dominant driver for gold prices has been the direction of the US dollar. As we are now expecting a lower dollar over the coming years we expect it to play a crucial role in the movement of gold prices. As for the Fed the analysts say that even if the Fed does raise interest rates later this year -- a scenario they see as unlikely -- they will be perceived as being behind the inflation curve high will once again be a pushing factor for gold prices as investors will likely buy gold because of lower US real yields and as some may see gold as a possible inflation hedge.

3.      There are lot of crucial political events this year:
a.   Current leadership crises in Brazil
b.  US presidential election in November
c.   U.K’s June vote over its membership in European Union.
All of them would leave a lasting effect if they go against the market.

4.      Terror threat across Europe, Syrian conflict and other Geopolitical tensions will always make Gold has the safest investment during the turmoil.

5.       Moody’s Investors Service highlighted China’s surging debt burden in lowering the nation’s credit-rating outlook to negative from stable earlier this month.

6.       We are in a tug of war between slow growth and high valuations on one side and central bank stimulus on the other.

Looking at the renewed turmoil in financial markets by highlighting the Fed’s policy divergence with the ultra-easy stances of the ECB and Bank of Japan, the near future seems bright for gold. 


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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 -

 "Brussels explosion and Gold's Safe haven appeal: RSBL"
http://riddisiddhibullionsltd.blogspot.in/2016/03/brussels-explosion-and-golds-safe-haven.html


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