GOLD TO BE PRESSURED DOWNWARDS: RSBL

 By Mr. Prithviraj Kothari, MD, RSBL

The bull market for gold is entering its seventh year. For the past seven months the market has traded roughly sideways.  Collapsing energy prices and a rising dollar have held back earnings and revenue growth. 

In the past, the demand for gold from China had been a motivating factor behind the rising prices for gold. But now, questions regarding the pace of global economic growth have moved to the forefront recently by price declines in the Chinese stock market, oil, commodities and high-yield debt in the past three months.

 

Such a slow pace of economic growth continues to create a deteriorating investment scene. Commodities and oil are key drivers of global economic growth, and falling prices do not usually portend rising demand. 

Gold has been trading in successively smaller weekly ranges for the past 2 weeks. This week we closed lower at 1095 with a very small range, and it appears that the bottom of the bearish trend.

 

Spot gold, which hit a session low of $1,082.76 an ounce immediately after the U.S. jobs report, managed to rebound 0.5 percent to $1,095.26 . It had fallen to $1,077 on July 24; it’s weakest since February 2010.

Though we saw some buying momentum in gold as the week ended, some market players state that since prices aren’t able to break the $1100 mark, gold does not bode well for a sustained rally.

Surprisingly, $1,100 appears to be the barrier that we just can’t seem to break. Although there are expectations that the market might trade in a tight range next week, gold remains an unwanted asset as the expectations remain that the Federal Reserve will raise interest rates in September.

After rising on Friday, following the U.S. Department of Labor’s employment report for July, the U.S. dollar weakened as afternoon trading wore on. It was a neutral report- not too close and not too far from expectations. Therefore, markets are finding it difficult to analyze and find a meaning in it. 

Economists have noted that July’s nonfarm payrolls report helped to rejuvenate those expectations. Although job gains of 215,000 were below expectations, it stills a “solid” report.

Consensus forecasts ahead of the report were expecting that the U.S. economy created 223,000 jobs. The unemployment rate remained unchanged at 5.3% last month, in line with economist expectations.

The consensus was for 223,000 jobs and July came in at 215,000. However, upward revisions to the previous months’ employment data plus a gain in average hourly earnings and hours worked were both viewed positively by market participants, and as a stronger signal the Fed could raise rates in September. 

The U.S. labor market lost momentum in July, coming in under expectations for the second consecutive month, according to the latest employment data from the Labor Department; however, the numbers still showed jobs gains of more than 200,000.

Friday, the Bureau of Labor Statistics said 215,000 jobs were created in July, down from June's revised number of 232,000; June’s initial report pegged the growth at 223,000 jobs. May's employment data was also revised higher to 260,000 from the previous report of 254,000.

Although the data was slightly weaker than expected, gold prices sold off in initial reaction to the news, dropping almost $10 and falling to a session low of $1,081.40 an ounce. 

Other highlights of the report were-

• The participation rate was also unchanged at 62.6% in July.
• Wage growth continues to expand at a steady pace, increasing 0.2% in July, compared with a 0.2% rise in June.
• The report noted that average hourly earnings rose five cents last month to $24.99. On an annual basis wages have increased by 2.1%.
•  Employees also saw an increase in the work week; the report said that the average workweek rose by 0.1 hour to 34.6 hours.

Although it appears that some of the immediate selling pressure has been alleviated, there is still strong negative sentiment in the marketplace. Retail investors continue to expect to see lower prices in the near-term and market professionals have once again turned bearish on gold.

The first data point that could have potential to move the gold price next week comes Thursday with the release of U.S. advance retail sales for July. The market ends the week with some inflation data with the release of the U.S. Producer Price Index for July.

Despite the negative sentiment, there is still market professional who see some hope for the yellow metal as technical momentum indicators continue to highlight an oversold marketplace.

However, gold is still fundamentally in the doldrums from the bullish point of view. Long term, gold will be pressured downward. 

Markets don’t expect to see another sharp selloff until Aug. 19, when the Federal Reserve will release the minutes of its July meeting. Markets will then expect a clearer picture of an interest rate hike in September.

Till then gold is expected to trade sideways until some solid crucial news is reported.

Markets could be stuck in a range next week in light volume as markets will be deeper into the summer holiday season.

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 -
"Rate Hike Creating Pressure On Gold"
http://riddisiddhibullionsltd.blogspot.in/2015/08/rate-hike-creating-pressure-on-goldrsbl.html

RATE HIKE CREATING PRESSURE ON GOLD:RSBL

By Mr. Prithviraj Kothari, MD, RSBL

Firstly, I would like to express my sincere condolences on the death of our former President Mr. A P J Abdul Kamal. As we all know him better as the missile man of India, his loss means a lot for our country.

Moving on to his week’s bullion market. Well there was lots of hustle bustle in the market as there was no clue over the prevailing volatility in gold.

Gold was probably in the worst macro position it could be in: you have low inflation, high accommodation across the globe, US investment growth and the possibility of further increases in the US dollar.

Currently it seems like gold has been divorced by the market.

Bullion was set to end July with its biggest monthly decline in more than two years after a deep rout last week shook investor confidence further and drove prices to a 5-1/2 year low of $1,077 on July 24. The metal has lost 7.4 percent so far for the month, its steepest decline since June 2013.

Bullion is set for a 7.4 per cent plunge this month, the most since June 2013, after tumbling to the lowest level since 2010 last week. The metal fell as much as 1.1 per cent to $1,084.51 an ounce on Thursday, and was at $1,085.51 at 2:24 p.m. in Singapore, according to Bloomberg generic pricing.

The main culprit for this week’s volatility was the US economic data which in turn influenced the Fed's decision of an increase in interest rates which in turn fluctuated the dollar prices.

Gold and dollar typically move in opposite directions, which means if the dollar goes up, gold futures will fall as gold, measured by the dollar, becomes more expensive for investors.

Gold was headed for its largest monthly decline in two years as the Fed moved closer to boosting US interest rates for the first time since 2006.

While there were no clear signals from the Fed as to when exactly would the rate hike come in, they did describe job gains as solid amid an improving economy, according to a statement Wednesday.

Post the statement released by the Federal Reserve- now markets expect the hike to come in soon – probably this September.

Fed policy makers expressed satisfaction with progress toward full employment and used one word -- “some” -- to describe the additional gains it wants before raising rates.

Increasing rates reduce the allure of gold as the metal doesn’t pay interest or give returns like other assets such as equities and bonds. Investors have cut their holdings in exchange-traded funds backed with bullion by 3.6 per cent this month, the most since December 2013.

Report released by the US department of labor showed the employment cost index rising 0.2 percent, which is the smallest increase in 33 years.

Gold is an asset that pays no interest or coupon and the rate hike is certainly putting pressure on prices.

Gold slipped on Friday and was on course for a sixth straight weekly fall, its longest retreat in 16 years, after upbeat U.S. economic data encouraged bets on the Federal Reserve raising interest rates in September.

Data on Thursday showed the U.S. economy grew 2.3 percent in the second quarter, while first-quarter gross domestic product was revised to show growth of 0.6 percent instead of a contraction.

That reinforced expectations the Federal Reserve is on track to raise interest rates, possibly at its next meeting in September. Higher interest rates would increase the opportunity cost of holding non-yielding bullion.

The data followed the Fed’s policy meeting earlier this week at which policymakers concluded that the world’s largest economy is “expanding moderately”.

But once again, apart from the employment data there were other key economic numbers that came in and influenced gold prices in the opposite direction. Gold prices were trading in positive territory on Friday after mixed US data weighed on the dollar.

Prices fluctuated heavily throughout the week as a combination of a Federal Open Market Committee (FOMC) meeting and US GDP figures drew investors from the sidelines.

ETF- outflows of gold from ETFs are capping any real recovery in the metal’s price. Holdings in funds tracked by Fast Markets have decreased for 14 consecutive sessions and are now at their lowest since February 2009 at 1,537 tonnes.

PMI- Chicago PMI in July was 54.7, exceeding the forecast of 50.7 and the first expansion reading since April of this year.

Consumer Sentiment- University of Michigan consumer sentiment in July was 93.1, below predictions of 94.2

ECI- Thought the weekly unemployment claims were much lower than expectations, a simultaneous wage growth was nowhere to be seen. Employment Cost Index showed a 0.2 percent increase, below the 0.6 forecast and yet another example of persistently low wages.

Eurozone - German retail sales fell short at -2.3 percent as did French consumer spending at 0.4 percent and the Italian unemployment rate at 12.7 percent. Eurozone core consumer inflation however at one percent was better than the forecasted 0.8 percent while the flash estimate at 0.2 percent was as expected.

Traders said sentiment bolstered as the precious metals rose in global markets after a report showed wages and salaries in the US rose in the second quarter at the slowest pace on record, weakening the case for the Federal Reserve to raise interest rates.

The next important data release is U.S. non-farm payroll figures, due on Aug. 7 which will once again play a key role in influencing gold prices.

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 -
"Disappointing Week For Gold:RSBL"
 http://riddisiddhibullionsltd.blogspot.in/2015/07/disappointing-week-for-gold-rsbl.html

GOLD DIRECTIONLESS: RSBL

By Mr. Prithviraj Kothari, MD, RSBL

 

The world economies are tumbling. Greece is trying to get more days…Chinese economy is foundering and there us downside pressure on the US markets too. A collapsing economy directly means that the money flocks to gold. But the markets have something else to say.

The precious-metals sector is enduring losses for the third straight week. Gold has also rallied yet remains dangerously close to making a new weekly low for the bear market.
The metals opened lower on Monday in the shadow of the Greek ‘no’ vote but ended the day mixed with average losses of one percent.

Precious metals closed down 0.7 percent on Monday, with gold holding value at $1,169.20 while on Wednesday, gold was last up $4.60 closed at $1162/ 1162.80 an ounce.
Precious metals prices moved away from recent lows in trading on Thursday morning after Fed minutes failed to provide a clearer picture on when the normalization of US monetary policy might begin.

There is more than one factor that is collectively responsible for the movement in gold prices. Let’s take a detailed look at them.

Greece- In Greece, negotiations will continue over the weekend after Prime Minister Alexis Tsipras presented a proposal that accepts many of initial cuts introduced at a June 26 meeting.
Investors seem to believe this latest chapter in the multi-year negotiations process will end in Greece remaining in the Eurozone – the euro was last up 0.8 percent to 1.1130 against the dollar.

The uncertainty over Greek debt crisis boosted the dollar, dampening demand for the precious metal as an alternative investment.
A $60 billion bailout plan is headed to the Greek parliament. It includes most of the austerity measures Europe has insisted upon and the gross dollar amount of the bailout is slightly higher. We shall see next week what happens and how it affects markets.


FOMC and Interest Rate Hike- “Based on my outlook, I expect that it will be appropriate at some point later this year to take the first step to raise the federal funds rate and thus begin normalizing monetary policy,” Yellen said in her speech in Cleveland.

“But I want to emphasize that the course of the economy and inflation remains highly uncertain, and unanticipated developments could delay or accelerate this first step,” she added.

US, Federal Reserve Chairwoman Janet Yellen predicted the timeframe for the initial interest rate hike, but also provided a hedge regarding the importance on inflation.
Friday, Yellen said, in a speech at an event in Cleveland, that she still expects interest rates to rise later this year but also acknowledged factors that continue to hold back the U.S. economy, including potential foreign threats.

China- GOLD BULLION prices rose Thursday against all major currencies, recovering all but $1 of the week's earlier $20 drop per ounce against the US Dollar as world stock markets gained following a hard bounce in China's main equity indices.

With trading still halted in around half the shares listed on the Shanghai and Shenzhen stock markets, the CSI300 index of the biggest companies closed 6.7% higher after the last 3 week's near one-third collapse.

No one knows where is gold is heading. Presently there is no call for safe haven investments beyond the solid currencies, namely the dollar, yen and Swiss franc.
Global market tensions may ease out next week with Greece expected to find some resolution to its ongoing credit crisis and Chinese leaders expected to keep a tight grip on equity markets to prevent another major market selloff.

Despite the negative weekly close, optimism is creeping back into the gold market. After five consecutive weekly bearish outlooks, retail investors have finally turned bullish, while market professionals remain mixed.

Nobody would want to buy in an extremely uncertain market. Investors would buy or sell gold once they get a clear signal and know what is happening with the Federal Reserve. The uncertainty in Greece and China is creating a lot of uncertainty and fear because nobody knows what the Fed is going to do.

Apart from the Global markets, there are others things that need to be watched by the investors next week. It’s a big week for US markets economic data.
 

• Markets will receive retail sales data for June
• Regional manufacturing data for July
• Consumer inflation data at the end of the week

However, the highlight will be Fed Chair Janet Yellen’s semi-annual testimony before Congress. She will testify before the house Financial Services Committee Wednesday and the Senate Banking Committee on Thursday.
Market participants are expected to go through her indication extremely careful to find any hints on when the central bank will pull the trigger on an interest rate hike.


The primary purpose of this blog by Prithviraj Kothari - MD, RSBL, is to educate the masses of the current happenings in the Bullion world.”

- Previous blog -"Will Gold Create The Safe Haven Magic"

http://riddisiddhibullionsltd.blogspot.in/2015/07/will-gold-create-safe-haven-magic.html

BULLS AND BEARS TO CLASH

                                              By Mr. Prithviraj Kothari, MD, RSBL

 

Over the past year and to be precise, lately, there has been a strong belief in the market that the U.S. is on it way of raising its rates. While evidence of continued improvement in the US economy is not gold-friendly and ultimately acts as an obstacle for the price rise in yellow metal.

Let’s have a quick glance to the important highlights during the last week:

Non farm payrolls data: 
       The most awaited or rather the most influential factor this week was the jobs report. The US created 280,000 new jobs in May, significantly above analysts’ estimates of 222,000 and the highest climb in jobs figures seen in months. US indicators have increased in importance at the moment as the Federal Reserve specifically identified US jobs data as one of the key factors on its decision when to raise interest rates from near zero.
      The unemployment rate was essentially unchanged at 5.5 percent. Private sector job growth has increased 63 straight months, a US record.

EUROZONE:
      In the Eurozone, French trade balance in April was a negative three billion, above forecasts of four billion, while German factory orders month-over-month in April was up 1.4 percent, beating consensus of 0.6 percent. With investor sentiment for gold so weak gold prices may well continue lower, but we do feel this is leading to a better buying opportunity and given developments in Greece and with potential for corrections in other asset classes, it may not be too long before the markets start looking for a safe-haven again.

DOLLAR:
    The dollar jumped to a 13-year high against the yen and gained against most major currencies, cutting the appeal of precious metals as alternative assets. The expectation of an interest rate hike has benefited the dollar and it has enjoyed a dramatic and sustained rally. 

GREECE: 
      Meanwhile in Greece, the country delayed a 300-million-euro repayment to the IMF until the end of June and bundling all the payments together, increasing the risk of a Greek exit from the bloc. 
      Prime Minister Alexis Tsipras reportedly rejected proposals put together by its lenders, arguing that any deal to unlock crucial bailout funds must be based on his own side’s conditions. But the two sides remain “very close” to agreeing a deal, after creditors supposedly proposed lower primary surplus goals.


Geopolitical Tension:
       Ukrainian troops and pro-Russian separatists on Wednesday fought their first serious battles in months and Ukraine's defense minister said an attempt by rebels to take the eastern town of Maryinka had been thwarted.

Post the US job data release, gold prices tumbled as the economy showed strong signs of recovery after a lackluster first quarter. Investors have been barring gold on signs that the economy has grown enough adhesion to damp the need for haven assets, encouraging worry that better progress will push policy makers to raise rates. 

It’s not possible to give a clarity to what exactly the price of gold is going to be tomorrow. Nor it is easy to take a buy call in Silver as the metal continues to follow gold with the risk to the downside. There are many factors that support and upper drive and a contrary lower drive for gold prices.

First, we think about international geopolitical tensions. Second, the uncertainty coming from Greece is still lingering in the minds of traders and captains of industry. Third, strategic or policy-related bullion purchases by central banks remain significantly high: After eight quarters of capital outflows from the ETF industry, the first quarter of 2015 saw a rebound in gold purchases.

However, two factors might hamper the bullion’s technical ascent, reducing the precious metal’s value over time. The first element comes from long-term charts: Gold is still in a long-term bearish trend, which has caused the precious metal to drop 30% in value from the peak reached during the summer of 2011. Second obstacle to higher gold prices: the strong US dollar and the historically negative correlation between the American currency and the yellow metal. To add Hedge funds and money managers cut net long positions in gold and silver during the week ended June 2, U.S. Commodity Futures Trading Commission data showed on Friday.

A stimulating clash awaits for bulls and bears in the coming months! But, as usual, the final word rests with the markets.

TRADE RANGE:

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1151 - $1191 an ounce	Rs.25,700 - Rs.27,300 per 10g
SILVER	$15.70 - $17.00 an ounce	Rs.36,500 - Rs.39,500 per kg

The primary purpose of this blog by Prithviraj Kothari - MD, RSBL, is to educate the masses of the current happenings in the Bullion world.”

- Previous blog -

"Calmness before the big move in Gold and Silver"

http://riddisiddhibullionsltd.blogspot.in/2015/06/calmness-before-big-move-in-gold-and.html

RSBL: A GOOD OPPORTUNITY TO BUY GOLD!!!

By Mr. Prithviraj Kothari, MD,RSBL

 

The last couple of years have been anything but normal for gold.  Back in early 2013, the Fed started augmenting its young QE3 debt-monetization campaign with aggressive jawboning.  It kept implying to stock traders that it was ready to quickly ramp up money printing if the stock markets sold off materially.  This short-circuited normal healthy sentiment re balancing sell offs, as traders feared nothing.

Thus the stock markets levitated, powered higher without normal material sell offs.  Since gold is an alternative investment that moves contrary to stock markets, this slowly strangled gold investment demand.  Investors gradually abandoned it, leaving this metal for dead.

FED's exiting the zero interest rates is a big point of debate for US economy. But frankly I do not think this is the only challenge we are talking about. To me, the unwinding of trillions of dollars used to purchase Bonds by the FED is more of a concern. Less than a year from now, FED will have take one of its biggest decisions of reinvesting $200 billion (approx) which are the proceeds from Treasury debt that is supposed to get matured in 2016. 

I did get some more idea by going through some news on the same:
 
1. If FED does not invest, it could lead to an increase in supply of security products available to the investors and put an upward pressure on yields.

2. If they plan to let it expire, it will shrink FED's balance sheet drastically leading to monetary tightening from increases in the benchmark interest rate officials envision for this year. That could mark a reversal of easing that FED achieved when it started its bond purchases programme after the recession.

For this week, Gold advanced for the first time in four days after holdings in exchange-traded products backed by bullion posted the largest increase in more than six weeks. On Thursday, gold-backed ETP holdings rose by 3.9 metric tons, the most since Feb. 23, to 1,620.1 tons, according to data compiled by Bloomberg. Holdings in the SPDR Gold Trust, the top bullion ETP, had the biggest jump in two months. This jump in holdings shows that there is some movement out of the conventional assets into gold.

CFTC data released on Friday showed that speculators sharply increased their bullish bets last week. The net weekly gain of 20,738 contracts was quite balanced from 10,312 of new longs and a 10,426 reduction of shorts. This increase brings the net position to +100,000 for the first time since March 3rd. This was also the third straight week of gains there.

But a good sign from Eurozone did come on Tuesday, where its private sector continued to improve in March with Markit's final composite PMI rising to 54.0 in March from 53.3 in February, an 11 month high.

Following suit, gold prices stabilized above $1200 on Friday although the markets watched the surging dollar. The dollar index remains strong at around its highest in three weeks – it was last at around 99.30, having earlier touched 99.69. The US currency has gained ground following the release of the mildly hawkish minutes from the March meeting of the US Federal Open Market Committee (FOMC) earlier this week.

The spot gold price was last at $1,207/1,208 per ounce, up $12.80 on Thursday’s close. Trade has ranged from $1,193 to $1,210.8. This does seem to be a pyschological boost for the boost.

To bottom it up, we saw gold getting support on Monday; post the weak jobs report that were released last Friday. Moreover, the dovish comment from New York Fed President William Dudley, gave gold the further push in prices. Furthermore, a weaker U.S. dollar provided underlying support for bullion. There may be more scope for bullion to rally.

Precious metals are highly sensitive and react instantly to the following

• Changes in monetary policy expectations,
• Fed's decisions
• Dollar prices
• Geo political crisis.

But currently what matter the most for the market watcher is - when the Federal Reserve will make its first move on rate and potential political fallout of Greece leaving the Eurozone.

Investment Tip: 
If gold breaks $1225 an ounce then it can be considered a good opportunity to buy in the market.

TRADE RANGE:

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1188- $1224 an ounce	Rs.26,500 - Rs.28,000 per 10 gm
SILVER	$16.15- $17.30 an ounce	Rs.36,000 - Rs.38,000 per kg

“The primary purpose of this blog by Prithviraj Kothari - MD, RSBL, is to educate the masses of the current happenings in the Bullion world.”

- Previous blog -
"Playing Games With Gold"

http://riddisiddhibullionsltd.blogspot.in/2015/04/playing-games-with-gold.html