Is it the right time to buy Gold, Silver & Platinum?

No doubt this had to be the blog for the week. Precious metal prices have been rocketing down for the entire week.

Let’s first focus on the reasons for the price fall:

1.    FED’s QE3 is being unwound at a steady pace. Tracking the improving US economic conditions, FED might even increase the pace of tapering.  QE was responsible to set record highs for gold and the same is the reason for its downfall in 2013.

2.    Ukraine turmoil had given the much necessary support to safe haven buying assets like Gold where the prices were on an upward spiral. As the turmoil continues to unwind itself and most of the news being discounted by the market participants, the support is slowly fading away.

3.    Physical demand is a concern. Bloomberg had reported that Iraq had increased their Gold reserves by a massive 36 tons in March and IMF data showed that Turkey was back increasing their Gold reserves by 9.3 tons in February. Hong Kong Trade Statistics showed a strong month of Chinese Gold imports for February, which were a net of 109.2 tons, which was 30% more than January and 80% more than the previous year. When I had seen these stats, I did feel that the physical demand is holding strong to support the Gold price fall. But frankly, Turkey or Iraq aren’t the main supporters for Gold. Undoubtedly it has been the show of Asian countries and majorly China. Now to track Chinese physical demand, I take support of SGE premiums. When the prices fall, SGE premium is the first one to go up, while that has not been the case lately. SGE premiums have been locked in a negative territory or hardly minutely up despite Gold price fall from $1390 to $1290 in a span of 2 weeks or so. Due to this I feel that once March data is released, it is likely to show a decline in imports relative to February numbers as SGE premiums were in positive range for most of the time in Feb.  With SGE premiums mostly in negative to hardly anything, it would have been less attractive to import metal. Even the But as the economic uncertainties increasingly looming over Chinese banking sector through shadow banking issues, I feel their physical purchases would dampen a bit.

4.    On the domestic front, Gold and Silver prices are dropping faster than its dollar denominated counterparts. Rupee has appreciated considerably when compared to dollar over the past few weeks. This has led to downfall in gold prices. Indian government and RBI had to take tough decisions over the past year and now the results are paying off. With the CAD in control, Indian economy is looking to improve from here on. Due to which investors are regaining their faith in India and investments are gradually increasing.

5.    Silver prices are more or less dragged along with Gold prices. With regards to platinum, the AMCU does not seem to be willing to accept less than double salaries, as it announced it would give Platinum producers one year extra time to adjust the wages and would only then return to work

My take on Gold prices in dollar terms will be in the range of $1180-$1400 i.e. INR 26500 to INR 32500. I feel this is the range that the investor should keep in mind while buying Gold.

My take on Silver prices in dollar terms will be in the range of $18.50-$23.50 i.e. INR 41000 to INR 47000. I feel this is the range that the investor should keep in mind while buying Silver.

Like others I do feel that if overall the economy improves than the downward journey for precious metals will continue. But like others, I feel the below given reasons will always play a crucial role in providing returns to the investors who trust on Gold and other precious metals.

1.    With the upcoming elections in India and CAD in control, I do expect that the new government will surely take some steps to boost the R&D for mining Gold in India as well as provide some relaxations in Gold import policies. If that happens, Asian demand will get a boost from India. But government policies will play a key role as they know the best when it is about deciding the best for Indian economy.

2.    As the prices head lower, I am sure that the physical demand will improve drastically world over and not only China because everyone knows that Gold is the only asset that can be taken into account during any economic turmoil.

3.    Gold will always play an important role in geopolitical conflict situations and economic uncertainties.

4.    As the prices continue to spiral down, mining industry will face hurdles to operate in low margin or no margin environments. If that is taken into consideration, I feel that their operational costs will rise more than the income they generate from mining creating the necessary closure of mines as it will be difficult to stay in business in such conditions.

5.    Silver and Platinum continue their downfall as they are more or less dragged along with gold prices. But as the economy improves their use in industries across the world will continue to rise and in turn increase their demand and prices.

6.    The bubbles created by money printing and market manipulation - not just in the U.S., but the entire world has never been universally unbacked, nor government intervention so widespread. This has not been seen over the years and the stimulus programmes have led to gigantic balance sheets of central of banks of the world under the word: “Economic Development”

Gold has always stood by one and all when it comes to economic uncertainties. But with Central banks and governments trying their best to revive their economies, Gold is loosing its investment appeal to some extent, as investors look for short term benefits.

I feel buying physical Gold, Silver and Platinum should be on cost averaging basis. It has been a successful strategy since the bull year began, though it would be a bit strange for the investors who started investing in the last couple of years.  I am sure Gold or for that matter any precious metal investments would always give best returns if considered as long term investment options and something that you can bank on in financial instabilities.

The primary purpose of this blog (Prithviraj Kothari's view on Bullion Markets- MD,RSBL (Riddisiddhi Bullions Ltd.)) is to educate the masses of the current happenings in the Bullion world.

- Previous blog - "GOLD GOES ON A BUMPY RIDE"
http://riddisiddhibullionsltd.blogspot.in/2014/03/gold-goes-on-bumpy-ride.html

GOLD GOES ON A BUMPY RIDE

-By Mr. Prithviraj Kothari, MD, RSBL (RiddiSiddhi Bullions Ltd.)

On Monday, gold reached a high of $1391.99, after the Crimean people had voted over the weekend in favour of joining Russian Federation. As Putin passed on the legislation, the west did their move with the first sanctions on Russia, now it is time to wait and see what Putin Replies. 

After shifting focus from Ukraine issues, gold then concentrated on growth figures from China and then the US tapering.

On Wednesday, gold dropped two percent, when Fed Chair Janet Yellen said the central bank will probably end its massive bond-buying program this fall, and could start raising interest rates around six months later.

It was a bumpy week for gold. After surging to near $1,400 earlier this week when Crimean voters agreed to join Russia, gold prices tumbled, picking up speed after the Federal Open Market Committee cut another $10 billion from its monthly bond purchases, and new Federal Reserve Chair Janet Yellen said the Fed may consider hiking interest rates about six months after it ends its quantitative easing program.

The US data so far has been supple. The month of Feb did not show a positive growth (weather conditions and harsh winter to be blamed) but now the economic growth is expected to accelerate.

However, the bank said it could take several more weeks, until April economic data is released, to get confirmation that the economy is  fact picking up. The Fed, as expected, tapered its QE by $10 billion on 19 March. With inflation staying low, rising nominal interest rate will lead to a jump in the real interest rate, which will likely cause the gold prices to trade lower.

Apart from this, precious metals were also partly related to the data released from the Chinese economy. The worries over this have also been rampant. The growth forecasts of China have been downgraded by many. In fact in 2014 the growth is expected to be 7.3 per cent compared to the prior estimate of 7.6 per cent. This means that the demand for gold will be affected which in turn will push gold prices down as China plays a central role in the market and had also become the leading consumer of gold in the world in 2013.

On the domestic front, this week, RBI added 5 domestic private banks to import Gold under the 80/20 rule, which is will assist in facilitating imports and ease premiums to some extent. Their quota will be dependent on how many customers do they have for exports.

India's CAD level is now nearly at 4 years low. The deficit is around$4.5 billion in Oct-Dec period as compared to $5.2 billion in the previous year. This is surely good news for Gold trade in India as it provides a chance for the government to work out strategy to allow Gold imports, but the time frame for that decision to come will take sometime since general elections are just about to begin.

What we need to watch out for in the week-

U.S. - Consumer Spending, new home sales on 25 March, the U.S. Q4 final GDP and core PCE Index

U.K.- Consumer Price Data

Japan- Inflation rates

Germany-a report on business confidence, IFO Business Climate Index

China- March flash manufacturing PMI 

Europe- Developments in Ukraine and Crimea

Since there is a lot to watch out for gold, giving "a" particular prediction for the yellow metal gets difficult at this stage.

But in the long run, gold is expected to be range bound by $1272-$1430 in the international market and Rs.28,000- Rs.31,500 in the domestic market.

On the other hand silver is expected to range between $19.55 and $23.00 and Rs.43,000- Rs.52,000 in the international and domestic markets respectively.

The primary purpose of this blog (Prithviraj Kothari's view on Bullion Markets- MD,RSBL (Riddisiddhi Bullions Ltd.)) is to educate the masses of the current happenings in the Bullion world.

- Previous blog -

"Lots of If's and But's for gold"

http://www.riddisiddhibullionsltd.blogspot.in/2014/03/lots-of-ifs-and-buts-for-gold.html

2014- AN INTERESTING START UP FOR GOLD

-By Mr. Prithviraj Kothari, MD, RSBL (RiddiSiddhi Bullions Ltd.)

Whenever a slightest of hope arises that the global economy is on a path of recovery ...a jerk hits and turns this hope into a nightmare. But these people are surely giving gold and other precious metals a jerk in the upward direction.

Price trend of gold in 2013, compelled many investors to believe that gold was finally entering the bear market and that it was time to shift focus to other metals. Gold had bottomed in December 2013, reaching $1182. But by February 2014, gold has managed to gain 13% by touching levels of $1340. In February itself, gold has gained 7 per cent. This has been its biggest monthly rise since July 2013 mostly due to weak data in US and geopolitical tensions around the world.

This week too gold was up. On Monday, gold rose 1 per cent over uncertainty and geopolitical tensions going on in Ukraine. Under these uncertain scenarios, people have once again given gold the safe haven status that it has been enjoying since years.

Russian-backed president Viktor Yanukovich cast doubt on a bailout deal with Moscow, saying it needed $35 billion over the next two years. Acting President Oleksander Turchinov warned that Ukraine was close to default and heading into the abyss.

U.S. data on Friday showed fourth-quarter growth expanded at a 2.4 percent annual rate, down sharply from the 3.2 percent pace reported last month.

Gold steadied around $1,330 an ounce on Friday and was on track for its biggest monthly gain as persistent concerns about a slowdown in the U.S. economy hurt the dollar. 

But the Federal Reserve chairman, Janet Yellen, stated that the harsh winter weather was to be blamed for this slowdown and economy will soon improve once weather conditions get better.

In the previous two meetings, the Fed had trimmed its monthly bond purchases by $10 billion and is expected to do so in its next meeting to be scheduled on March 19.

The entire market awaits this meeting as the picture will get clear that is it the weather or something else that has to be blamed for a disappointing US economy. It is then that the Fed will be able to take a concrete decision regarding its tapering or it could even mean some loosening. The softer tone and the apparent readiness of the Fed to slow the pace of tapering have boosted both the gold prices and stocks.

Moreover, ETF gold liquidation has slowed down as the price has of Gold moved upwards. ETF gold holdings have been moving sideways since the middle of January. SPDR gold trust is stable at a holding of 803.70 tons. 

But what stole the show was Platinum, as prices reached a high of $1455, outperforming gold. As such the reports by Impala that given the ongoing strikes, it could meet guaranteed contractual deliveries only until the end of March and for the South African market until April which was already in the press and should be discounted by now.

The latest gold import and export figures from Hong Kong Census and Statistics Department, the special administrative region exported a net 83.6 tons of gold to the Chinese mainland in January. This figure may be less compared to export figures of December, but if we compare it to January 2013, it has been an exorbitant rise of 330 per cent.

Currently there are a lot of indicators for gold price movement-

- The US January core PCE price index

- The final February China HSBC manufacturing PMI

- The February flash PMI of the E18 in 3rd March

- The start of the Chinese NPC meeting on 5th March

-The monetary decision and announcements of the Bank of England and the ECB on 6th March

-The US nonfarm payrolls and unemployment rate of February slated to release on 7th March.

Political tension in Ukraine, uncertainty in Europe along with weak US data helped the price of gold due to increased safe haven demand. Next week should get more interesting data wise, as February numbers should come cleaner of winter effects.

Meanwhile, gold is expected to range between $1307-$1361 and Rs.29,500-Rs.31,000 in the international and domestic markets respectively. Whereas silver is expected to range between $20.55 to $22.00 and Rs.45000- Rs.48,000 in the international and domestic respectively.

The primary purpose of this blog (Prithviraj Kothari's view on Bullion Markets- MD,RSBL (Riddisiddhi Bullions Ltd.)) is to educate the masses of the current happenings in the Bullion world.

- Previous blog - "The Changing China"

http://riddisiddhibullionsltd.blogspot.in/2014/02/the-changing-china.html

THE CHANGING CHINA

-By Mr. Prithviraj Kothari, MD, RSBL (RiddiSiddhi Bullions Ltd.)

Amidst all the chaos that has happening at the Global level, I feel we should just relax a bit and understand what gold is really up to. At the current levels, it would be tough to make any short term predictions from Gold or Silver price levels. But lets take a recap and try to work out something...

The yellow metal price by the end of 31st Dec, 2013 ended a 12 year rally which saw trading below $1200.This decline was driven by low interest rates and certain steps taken by the global central banks to foster the world economy. 

But in 2014, gold showed a remarkable re-bounce and touched 1327$ an ounce this week. On Tuesday, gold reached 1332.10, its highest since October. Last week gold gained four percent and this week it followed suit. Thursday too saw gold moving up as dollar gave up gains. By Friday, gold was seen gaining for a third consecutive week on uncertainty over the stimulus measures. 

Gold rallied to a three and half month high earlier this week after reports stated that US economic indicators were disappointing. A report showed that existing US home sales fell more than expected to an 18 month low in January. This sparked speculation that the Federal  Reserve might slow the tapering of its bond purchases.

Expectations that US Federal Reserve would maintain the pace of a withdrawal of monetary stimulus may diminish gold's investment appeal as a hedge against inflation. 

Apart from the FED's QE3 uncertainty, there are various factors that influence gold prices. The general global investment factors, or monetary policy or economic strength. The move to raise the US debt ceiling limit to unspecified limit until next year March will surely support Gold prices.  But lately, the most important factor has been the Chinese demand for gold. This has held up gold prices strongly. The Chinese demand for gold has helped in boosting gold prices at a time when the Fed's monetary stimulus measures have been driving down the prices and the global economy is showing signs of recovery.

Till last year, India was considered the largest consumer of gold worldwide. But according to the World Gold Council, in 2013, China overtook India as the largest buyer of gold. In fact China imported 1066 metric tonnes of gold as the demand for gold bars, coins and jewellery soared 32 per cent to a record high.

*

2014, has just begun and China has already imported exorbitant quantity of gold. This year, the World Gold Council expects China to remain the world’s largest consumer of physical gold. While down slightly from last year’s record level, the research body projects China will still gobble up a robust 1,000 tonnes to 1,100 tonnes of gold in 2014. 

Till 2002, Beijing had barred its citizens from owning gold bars and coins. Even though gold appreciated for a long time in china, the citizens were not able to use it to that extent. but once the government lifted restrictions on gold ownership the Chinese rushed to buy gold and this gave a boost to gold prices.

Moreover, as an economy china has witnessed speedy development. This has also resulted in higher spending power as incomes have risen. Generally, people buy gold as one of the safest forms of investment and also include gold in their portfolios. And given that till 2012, gold has given the best returns in its asset class it's obvious that people are tempted to own it.

The same has happened in China. Though gold dropped almost 25 per cent last year, demand for it from China did not drop and this kept the gold prices moving.

Meanwhile in India, duty on gold that had been levied to rectify the current account deficit has been the major factor for a decline in demand as the precious metal is being sold at very high premiums making the yellow metal even more dearer. The interim budget did not have any changes with regards to Gold import policy or import duty cuts. Gold premium over international price jumped USD 30 on that day.

According to Bloomberg, Silver had its longest daily straight gain since more than 40 years on 18th Feb, after moving higher for 11 consecutive days from 19.08 on 3rd Feb to close at 21.83 on 18th Feb.

Seeing strong physical demand from China and US disappointing economic data, I do feel that Gold price should hover between $1307 to $1360 in the international market whereas in the Indian markets it is expected to be between Rs.30,000 to Rs.31,500. Respectively silver is expected to range between $21.05 and $23.10 and Rs.46,500 and Rs. 48,500.

*goldsilverworlds.com

The primary purpose of this blog (Prithviraj Kothari's view on Bullion Markets- MD,RSBL (Riddisiddhi Bullions Ltd.)) is to educate the masses of the current happenings in the Bullion world.

- Previous blog - "Let's Get Gold"
http://riddisiddhibullionsltd.blogspot.in/2014/02/lets-get-gold.html