BULLISH SENTIMENTS FOR GOLD: RSBL

 By Mr. Prithviraj Kothari, MD, RSBL

Recently gold has been struggling to climb up due to the recurrent changes in the expectations of an interest rate hike. There is quite a possibility that market players are paying too much heed to the whole interest rate scenario and in turn missing on the bigger picture.

Nonetheless, Gold continues to work lower alongside the rest of precious metals – a resilient dollar and rising US real rates have prompted traders to unwind their long positioning. Investors have become increasingly edgy ahead of the conclusion of the Fed and the BoJ meetings

The spot gold price inched lower during Asian trading hours on Friday amid Mid-Autumn festival holidays in the region.

Spot gold was last at $1,314.66-1,315.00 per ounce, down $1.17 from Thursday’s close.

The spot gold price had tumbled to a week’s low of $1,307.75 on Thursday on selling pressures following a brief spike to $1,328.10 sparked by weak US retail sales data.

In data released Thursday-

• US retail sales in August undershot at -0.3 percent
• Core retail sales in August undershot at -0.1 percent.
• Industrial production month-over-month in August also disappointed at -0.4 percent
• The US PPI in August was unchanged; a 0.1-percent gain from the previous month has been expected.
• The core PPI – excluding food and energy costs – was in line at 0.1 percent.
• The Empire State manufacturing stood at -2.0 missed the expected -0.9
• The Philly Fed manufacturing index at 12.8 beat the predicted 1.1.
• Capacity utilization rate in August stood at 75.5 percent, a touch below the 75.8 percent
• Weekly unemployment claims for September 1-8 in at 260,000 were just below the forecast 262,000 and, more importantly, the psychological 300,000 mark.
• Lastly, the current account balance in June was in line with consensus at -$120 billion. Business inventories month-over-month was unchanged in July, missing the 0.1 percent forecast.

There was disappointment in the markets when the data was released that showed signs of a softening US economy,.aThe US economy has recently shown signs of softening – data including retail sales, its PPI and industrial production have undershot.

While disappointing numbers have lowered the likelihood of an imminent Fed rate increase - for September was just 12 percent, November was 19.3 percent and December was 46.2 percent. Earlier this week, majority had expected a rate hike in December.

With such soft data coming in from the US, expectations have largely diminished towards the Fed doing anything in September and the market is drifting back towards the view they might do nothing for quite a while.

Some even feel that markets are overeating to a potential rate hike and giving too much attention to it, thus ignoring other crucial factors that have the potential to influence gold prices.

The market is once again divided between the supported of bulls and bears for gold. The ones that are bullish are not worried about gold’s recent downtrend. What is the most important factor for investors is that the gains seen so far are sustainable and that gold has more or less stabilised before it takes that long jump to rally.

They believe Fresh disappointing US data has reinforced our view that the Fed should remain on hold in September, resulting in renewed weakness in the dollar and US real rates and prompting fresh buying in gold.
Moreover, demand for gold from China and India is expected to rise over the months to come which will further boost gold prices higher. The market is  moving towards to a festive season and this period of the year has generally seen demand for gold rising and this rise in demand will make up for the weakness gold has faced over 2016.

Given that gold is heavily influenced by fluctuations in the dollar and US real rates, we are not surprised by the metal continuing to weaken. But the bullish supporters for gold also believe that this weakness is temporary and is currently driven by a stronger dollar and higher US real rates

Our big-picture outlook remains bullish but more profit-taking could easily be triggered if the price action disappoints, as it may be starting to do.

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 STABILISES: RSBL"

 http://riddisiddhibullionsltd.blogspot.in/2016/09/gold-stabilises.html

BULLION MARKET HIGHLIGHTS- DECEMBER 2015- AUGUST 2016: RSBL

 By Mr. Prithviraj Kothari, MD, RSBL

AS 2015 came to a close, most traders expected that 2016 would be a year subjugated by a series of Fed rate hikes.

 

That belief strengthened in late-December 2015 after the Fed delivered on its promise – and raised interest rates for the first time in almost a decade.

 

In a widely telegraphed publication called the "Dots Plot", the Fed signalled that it would continue to normalize its monetary policy, and raise interest rates by a total of +1% through 2016 to a target of 1.375%, a "gradual" pace and in line with earlier forecasts.

Though gold was expected to be bearish on 2016, it showed upward prices movements and The World Gold Council attributed this rally to three principal factors:

• the widening landscape of negative interest rates in Japan and Europe;
• the devaluation of China's Yuan; and
• The realization that the Fed was bluffing on hiking the Fed funds rate, and wouldn't dare take any action that could knock the stock market lower ahead of the upcoming November elections in the US for Congress and the Presidency. 

While we are a few months away from the year end I would like to throw light on a few key highlights that influenced the bullion markets worldwide.

Fed Hike- on 4 January 2016, San Francisco Fed chief John Williams said he saw a steady campaign of interest rate rises. "There are still pretty significant headwinds" facing the US economy from weak overseas economies, the strong Dollar and housing related issues, Mr.Williams told reporters.

 

 

On 6 January, Fed deputy Stanley Fischer warned the markets could expect three to four increases in the Fed funds rate this year. Speaking on CNBC television Fischer warned:

"If asset prices across the economy – that is, taking all financial markets into account – are thought to be extremely high, raising the interest rate may be the suitable step."

Based on expectations of 4-Fed rate hikes to 1.375% by year's end, gold initially declined in the month of December to a six year low at $1054 per ounce. Most analysts expected the downfall to continue through 2016, but they were proved wrong.

 The price of gold suddenly surged 16% higher in the first quarter alone. Giving gold one of its strongest quarterly performance in nearly three decades.

SPDR- The world's largest gold-backed exchange-traded fund, SPDR Gold Shares (NYSEArca:GLD), surged in its holdings to the most in six years, jumping to 983 tonnes, and global gold holdings in ETFs topped 2,000 metric tonnes for the first time since June 2013 following the Brexit fallout, when gold buying sparked even more gold buying.

 

BOE-  On June 30th, Bank of England chief Mark Carney said the economic risks from Brexit had started to crystallize, and he hinted at a resumption of QE, lifting gold to its biggest one-day surge in years after Britons shocked markets by voting to leave the European Union, driving investors toward safe-haven assets such as bullion.  Gold soared as much as 8 percent to its highest in more than two years in the week ending 28^th June, 2016 after the UK referendum results, sending investors rushing for protection. Gold prices surged to its highest level in more than two years, at $1,359 since March 17, 2014, sending shock waves across markets.

BOS- by June 2016, all of Switzerland's government debt, including its 30-year bonds, started trading at negative yields.

 

In all, a record US$11.7 trillion of global sovereign debt has dipped to sub-zero yield territory. This has only strengthened the rally in gold, and about $13-14 billion of money has made its way into gold exchange-traded funds (ETFs) as asset managers moved from fixed income into gold earlier this year.

 

Gold climbed to a two-year high at $1371 per ounce in July, convincing UBS Group to predict that gold is probably at the beginning of its next bull run

BOJ- gold's spectacular rally found a stiff roadblock at the $1370 per ounce area when Japanese government bonds suddenly began to fall sharply into their worst sell-off in 13 years. On August 2nd the Bank of Japan shocked the markets and rattled gold traders by keeping its bond purchases steady, defying expectations it would buy even more.

 

 

Gold traders became even more nervous after the BoJ said it would re-evaluate its Negative Interest Rate and QQE policies in September. Some investors see the policy review as a tacit admission by the central bank that after more than three years of massive money printing, the BoJ could be ready to start tapering the pace of the QQE liquidity injections.

 

   

Since the $10.4 trillion bond market in Tokyo is at the core of the negative interest rate world, if the BoJ begins to allow Japanese bond yields to climb by tapering its QE scheme, it could continue to rattle the price of gold – at least on a short-term basis.

BoJ policy makers ordered staff to make a "comprehensive assessment" on the impact of its easing program and negative interest-rate policy ahead of the next policy-setting meeting on 20-21 September. Some traders suspect the review is aimed specifically at assessing the effectiveness of negative rates, potentially giving policy makers scope to declare the exercise unsuccessful.

So for the month to come, BoJ will surely have something crucial for gold in store.

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:

"Higher Gold Prices For The Domestic Market: RSBL"

http://riddisiddhibullionsltd.blogspot.in/2016/08/higher-gold-prices-for-domestic-market.html

Wishing you a very happy and a colourful Holi!

                   

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Post-Budget 2016: Views of RSBL - Mr. Prithviraj Kothari

                                                          By Mr. Prithviraj Kothari, MD, RSBL

           Over all it was an average budget for the bullion industry as not much modifications were made as far the polices and regimes are concerned. We expected an implementation of GST for all round growth of our economy including supply chain, sourcing and distribution decisions, inventory cost, cash flows, pricing policy, accounting system and transactions management but nothing came up on that front.

             There were no changes in CTT (Commodity transaction tax) too.

     Bullion dealers and jewellery manufacturers have sent several representations to the government for reduction in import duty from the existing 10% to 2% to provide a fillip to the domestic jewellery sector. But nothing has taken place on that front too.
 
             On the contrary, an excise of one percent has been levied which will prove to be major setback for the officially organized sector of the bullion industry.

            Over all it was a neutral budget with no major developments for the bullion industry. On a scale of 1 to 10 I would rate this budget as 6.

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 -
"Pre-Budget 2016: Views of RSBL - Mr. Prithviraj Kothari & Importance of GST for Bullion Sector"
http://riddisiddhibullionsltd.blogspot.in/2016/02/pre-budget-2016-views-of-rsbl-mr.html

Photo courtesy: http://www.financialexpress.com/photos/budget-gallery/217311/budget-2016-live-income-tax-highlights-expectations-arun-jaitley-speech-service-tax-gst-bill-union-budget-news/

Pre-Budget 2016: Views of RSBL - Mr. Prithviraj Kothari & Importance of GST for Bullion Sector

                                                                                                                    By Mr. Prithviraj Kothari, MD, RSBL

The transcript of the video is as follows:

Anchor: How significant is goods and services tax (GST) for bullion industry?

Mr. Kothari:  Implementation of GST should be expedited for all round growth of our economy including supply chain, sourcing and distribution decisions, inventory cost, cash flows, pricing policy, accounting system and transactions management. The government should levy on bullion flat GST which would replace most indirect taxes like small local taxes, LBT, octroi etc currently in place. Not only that, there will be an ease in documentation too. 

Anchor: Government of India has focused reducing import of gold. Has time come to focus on gold mining in India?

Mr. Kothari: India is rich in mineral resources. But, because of poor research and development (R&D), gold mining has been at bay. Despite huge resources, total production from domestic mines constitutes between 1-3 tonnes out of India’s estimated consumption of 1000 tonnes. On the other hand, China boosted its gold refining business after allow single-window clearance along with fiscal and infrastructure incentives which has put the industry on fast track. China reported total gold production at 451.8 tonnes in 2014, up by 5-52 per cent from the previous year, and become the largest gold producer in the world eighth year consecutively. India needs to focus on R&D in an effective way to reduce dependence on import and therefore, foreign direct investment (FDI) in R&D should be expedited. Moreover there are lot of issues with mining like the local MLA issue, local population of a particular area concerns etc. Due to these issues, mining has lot of limitations.

Anchor: With such issues, mining will remain just a dream for India.

Mr. Kothari: See, today somebody invests and starts mining and then people come forward with a stay on it. So who will invest money in India? The government should provide single window, frame only one policy that clearing, environment, all will be issued by the central government. State government will have no say. The emerging revenue issues should be decided state versus centre.

Anchor: Despite repeated request, the government has not yet reduced import duty on gold. Do you expect the same in the upcoming budget?

Mr. Kothari:  Bullion dealers and jewellery manufacturers have sent several representations to the government for reduction in import duty from the existing 10% to 2% to provide a fillip to the domestic jewellery sector. Domestic jewellery buyers stayed away from fresh purchase since long amid expectations of cut in import duty.

Anchor: You have said earlier something that commodity exchanges are the best tools for hedging the price risk? Is the current system of trade sufficient or the government should do something else?

Mr. Kothari:   See, in the last conference we held, our Shaktikant Dasji had said that there should be a bullion bank. Indian Bullion Jewellers Association, I and others together worked out on the concept and have tied-up with BSE to establish an Exchange and Bullion Bank, subject to RBI clarification. So, if these things happen, the disparity the people have in the market today will reduce very much. According to me, if the bullion bank is there, the prevalent difference of parity and disparity (will be reduced to great extent). Sometimes, the premium becomes 13 Dollars, 20 Dollars, 30 Dollars and sometimes even minus 30 Dollars. So, during the minus period we cannot re-export them. So, in my opinion, the government should open a bullion bank here wherein if you deposit gold, you will also get benefit over that and (if) you want to re-export that, you can re-export through the Re-export Bank. Thus, to great extent, there would be support to the economy and in a way, the economy will boom.

Anchor: Take intercepts from your last interview, you had stated that Gold Bond and Monetization scheme are very good initiatives from the government. But the stats portray a different picture. What the government should adopt to make it more successful?

Mr. Kothari:  See, the initiatives by the government are very good. Until today, no government has taken such initiatives. One problem that is hindering its success is the gold deposit scheme. Today gold is lying in every household. If you ask them its sources it is very difficult for them to provide as it could be lying for ten years, twenty years, thirty years, forty years, since their grandparents time. Thus the government should do something like, you may say, a concession should be given up to 500 grams of deposit. Second emerging issue is that there of the jewellery. When the jewellery is melted there is a loss in the elements. Some steps would have to be taken to take into account the loss issue. With respect to the sovereign bond scheme, liquidity in the market is tight. Otherwise, the scheme is very good wherein 2.75% interest is also available. But with it, currently the market conditions aren’t favoring it. For example, the prevailing price was 27,000 and price of that sovereign bond was 26,000, even in that some 2700 plus crores rupees came. Thus, with this it is clearly visible that there is very much liquidity crisis in the market.

Anchor: To sum it up, any additional points to expect from the government with respect to BUDGET 2016?

Mr. Kothari: I hope that the ban on gold trading levied by the government on SEZ (Special Economic Zone) should be lifted. It would boost the exports in a major way. I hope that bullion bank and bullion exchange only for gold wherein the government itself would borrow from and lend into.

Anchor: Thank you so much Sir for your time. If you could throw some light on the Trade range; for Gold price during the Budget week and thereafter?

Mr. Kothari: With the geopolitical tensions and the economies faltering, I do see a good support for the Gold prices for a while. USD 1070 should act as a strong support while USD 1300 should act as a strong resistance. In rupee terms INR 25,500 to INR 33000 should be a trade range to look for in Gold prices.

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 -

"BULL V/S BEAR FOR GOLD: RSBL"
http://riddisiddhibullionsltd.blogspot.in/2016/02/bull-vs-bear-for-gold-rsbl.html