RSBL: Yemen's push while Fed's Caution

                                                                By Mr. Prithviraj Kothari,MD,RSBL

We have seen quite interesting movements in gold over the past fortnight. In fact the price of gold has been on a rally over the last one week, rising from well below $1150 to the current level of about $1205. Based on recent trend, the price of the yellow metal is currently testing a major resistance zone of $1200 to $1220.

Undoubtedly, Yemen's turbulence had to play a major part in this up-move. Gold was rocketed towards a break out of USD $1220 that acts to be its key resistance. Silver did follow Gold up-move and touched a high of USD $17.41. Initial air strikes by Saudi Arabia caused a spike in oil prices and other commodities edged higher.

The current volatility in gold has been mainly due the recent comment by Fed Chair Janet Yellen that the policy makers won’t be rushing on rate hike. The Fed has kept its benchmark rate at a record low near zero for more than six years.

Some of the important statements released by Federal Reserve Chair Janet Yellen were-

• She said Friday that continued improvement in the U.S. economy means an increase in the Fed's key interest rate could come later this year but at the same time she stated that any rate increases would happen gradually.
• Yellen said Japan's experience over the past 20 years argues for a cautious approach.
• She stated that main reason for this gradualist approach is that the risk of raising them quickly is much higher than doing so gradually. Tightening the loan rates could stall the economy. Which will again have its own side effects.
• Both Yellen and Fischer stressed the Fed's expectation that rate hikes would be gradual and that the Fed's action would depend on how the economy performs in coming months.

Next week markets continue to look volatile for gold as the market will react to data in anticipation of potential Federal Reserve rate hikes and Saudi strikes in Yemen. 

Gold prices have a more bearish outlook. Reasons being:

• The U.S economic data have so far continued to impress and another positive commentary would subsequently end the recent rally in the price of gold. A stronger than expected US PMI data and some hawkish comments from Feds Lockhart did take some shine out of the rally. Even the unemployment claims filed by US citizens have fell more than expectations creating a sign of stonf fundamental growth.
• Weakening demand for gold from China and India poses several challenges for the yellow metal to reach its January highs. China's gold imports from Hong Kong fell to their lowest in six months in february, data showed on Thursday. Whereas the sudden jump in prices have dampened demand in Indian markets.
• SPDR Gold trust has continued to see outflow in-spite of the ongoing rally, where it reported that the holdings fell by nearly 6 tonnes to 737.24 tonnes on Thursday, the lowest since January.

If anything, the recent rally is a magnificent reward to gold bulls, especially considering the overall market bias, and hence some would be looking to cash in at the current level which would again put more pressure on the price. This would shift focus from gold to US equities and the USD thus pressuring gold prices to fall further.

But the ones who believe that the market is bullish for gold have their own justifications. They believe that a long with uncertainty in the Middle East, Greece’s negotiations could also create a safe-haven bid for gold next week.

The bottom line is that the recent rally in the price of gold lacks enough catalysts to sustain it towards levels seen in late January. In fact, based on recent events, a lot more could count against a continuous rally thereby signaling an end to the current run.

TRADE RANGE:

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1185-$1230 an ounce	Rs.26,000- Rs.27,500 per 10gm
SILVER	$16.40-$18.00 an ounce	Rs.37,600- Rs.40,000 per kg

 

INVESTMENT MANTRA: 
Buy on corrections and keep investing systematically every month. You may take the services of Bullion India for Systematic investment plan.

I feel that Silver will surpass Gold in the future. The price range between INR 33000 to INR 40000 does serve as a strong appetite for Silver consumption.

“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 -
"An Action Packed Week For Gold"

http://riddisiddhibullionsltd.blogspot.in/2015/03/an-action-packed-week-for-gold.html

WISHING EVERYONE A HAPPY, COLOURFUL AND SAFE HOLI

LOTS IN BASKET FOR GOLD IN THIS WEEK

by Mr. Prithviraj Kothari, MD, RSBL

The week was volatile for gold. Gold acted weak on Monday but later picked momentum by the end of the week, ultimately closing the week higher and notching a third straight week of gains.

On Monday, gold prices ended slightly lower and pulled back from the positive gains witnessed last Friday. A stronger US dollar weakened the gold and silver markets. But later in the week gold managed to rise above $1200 even though the dollar gained. 

George Gero, vice president with RBC Capital Markets Global Futures, said gold attracted some buying when it rebounded over $1,200. Few other news that moved the market:

• China: In order to fuel the slow moving Chinese economy,  China’s central bank reduced its interest rate. Chinese economic data in the past has been disappointing. This move by the China central bank comes as a bullish factor for gold. 

• European Central bank: The statement released by ECB president Mario Draghi made it very clear that the ECB will use all means within the ECB’s mandate to return the EU to its inflation target, including implementing quantitative easing and this he said will happen soon. 

• Gold Buying:  European and Russian central banks were looking to acquire more gold.The Dutch Central Bank says it has recently shipped 122.5 tons of gold worth around 4 billion Euros ($5 billion) from safekeeping in New York back to its headquarters in Amsterdam. With this move the Dutch Central Bank has joined the bandwagon along with other banks that are keeping a larger share of their gold supply in their own country. This boosts demand for gold and gives a positive outlook for the yellow metal. 

Gold futures climbed to a two-week high topping $1,200 an ounce after Russia added to reserves, fueling speculation that a rebound in demand for bars, coins and jewellery will help stem this year’s drop.

The gold market has a lot in basket to be seen in the next week. 

• There is a major meeting of the Organisation of Petroleum Exporting Countries, inflation data out of the euro zone, and a major holiday in the U.S. to keep volatility high.
• Swiss Referendum- The market may also see some last-minute positioning ahead of the Nov. 30 Swiss gold referendum. Traders are also already discussing next week’s Swiss referendum which would require the Swiss National Bank to hold 20% of its assets in gold. A Swiss poll on Wednesday showed the majority of voters were not in favour of the measure. This news was credited in part with weakness in the gold market Wednesday. This can be a game-changer worldwide. If the Swiss franc stops falling and starts rising because of this then more people will understand that a strong currency is good not a weak currency.
• November Germany IFO business climate 
• The November U.S. consumer confidence index 
• the October U.S. Core PCE price index and personal spending 
• the Euro zone private sector loans, 
• the October Japan inflation data, 
• Later in the week, analysts said they’ll watch to see what euro zone inflation data shows. Inflation has remained tame, which doesn't support gold, analysts said, and euro zone inflation has been particularly soft.

TRADE RANGE

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1180-$1215 per ounce	Rs.26,250-Rs.27,000  per 10gm
SILVER	$16.00- $17.50 per ounce	Rs.35,000- Rs.39,000 per kg

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 -

"The Dollar Is Being Watched Closely" - http://riddisiddhibullionsltd.blogspot.in/2014/11/the-dollar-is-being-watched-closely.html

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IS GOLD BEING COMPLETELY CONTROLLED BY THE DOLLAR?

by Mr. Prithviraj Kothari, MD, RSBL

Gold is being pressurised on multiple fronts-

• Equities
• U.S Dollar
• Chinese Demand for Gold
• European Union
• Japanese Bank

The equities markets is yet another reason that continues to pressurise gold. The stock market continues to look poised for another run higher into new high territory.  

Moreover investors have been more confident about the equities market as compared to gold and this has prolonged the ongoing lack of interest in gold and precious metals.

Apart from equities, The US dollar index too has been mounting pressure on gold. 

Dollar is at multi-year highs and does not appear headed for a reversal anytime soon. Ongoing deflationary pressures in the Euro zone along with economic struggles in Japan could potentially keep the greenback well-supported for some time. 

Gold has been dancing to the tunes of the U.S dollar and there is a big expectation that the U.S. economy will continue to grow and that will further boost the dollar. The notion of higher rates and economic strength is driving the dollar higher and gold lower. 

Surge in the dollar, in which gold is priced, has knocked the metal in recent days through key chart support at $1,180 an ounce -- the lowest level hit during last year's 28 percent plunge -- and $1,155 to its lowest since early 2010 at $1,137.40.

Initially $1150 was considered a good support level for gold but now that gold has crossed this level too,  technical analysts have said a test of the $1,000 level could be on the cards after a break of support at $1,155, a retracement level of its rally to record highs in 2011.

Moreover, robust demand for gold from China has been raising concerns amongst analysts and investors. It has been marked that China, the leading gold consumer of the world, usually buy lot of jewellery, bars and coins at dips. 

Chinese gold buyers, who in the past often took advantage of falling prices as a cheap way of buying into the yellow precious metal, are still biding their time. But this year demand from this country has also been low.

On Wednesday, gold touched the lowest since April 23, 2010. Gold sank about 2 percent on Wednesday to its lowest since mid-2010, potentially opening the way for a fall to $1,000 as a surging U.S. dollar weakened the investment case for non-yielding bullion.

Moreover,  the divergence between the U.S. and economies including the European Union and Japan is driving gains for the dollar. 

Gold futures fell, capping the longest slump since May 2013, as the dollar rally eroded the appeal of the precious metal as an alternative investment.

Gold prices ended the U.S. day session narrowly mixed Thursday and not far above this week’s 4.5-year lows. Trading was quieter ahead of Friday morning’s important U.S. jobs report.  Once the report was out and the key indicators were not as per expectations , precious metals rebounded. The spot gold price was last $8 higher at $1147.90/ $1,1468 an ounce in Thursdays close after spiking up to $15850 with the dollar last at 1.2374 against the euro.

The metal has lost around $100 an ounce over the past week, regenerating memories of a stunning two-day drop in 2013 that started a huge wave of divestment and an annual drop in gold prices after 12 consecutive years. 

Silver was down 3.6 percent at $15.43 , paring losses after hitting $15.13, its lowest since mid-2010.

On Thursday, spot gold prices gained after the US jobs data was out. Spot gold was $8 higher at $1147.90/1148.60 per ounce. The US jobs data stated that the US added just 214,000 jobs in October. This was down from 248,000 in September and also below the predicted 235,000. This gave some support to gold that been witnessing a tumble since quite some time now.

Next week brings more attention to euro zone and Chinese economic data, and the results may serve to underscore the monetary policy divergence between the U.S. and the rest of the world.

The would result in strengthening of the dollar thus further putting pressure on gold which would act completely opposite to gold price movements on Friday.

Moreover, several European countries will release their first third-quarter gross domestic product data, and China will release reports on industrial production growth, producer price index and export data.

Even as China Japan and the Euro zone shows that their economy has been growing as much slow pace and they need easy monetary policies, next week there will more outlook on policy divergence with the Federal Reserve needing to decide on the interest rate hike which many analysts believe wont come in March

While the longer-term trend remains down, gold will likely not go straight down. A short covering and/or relief rally will likely be soon in the coming weeks and gold could possibly test the breakdown level of $1183 before potentially heading lower again.

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 -

"Fed Sets The Rules For Gold"

http://riddisiddhibullionsltd.blogspot.in/2014/11/fed-sets-rules-for-gold.html

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GOLD TEND TO MOVE SIDE-WAYS

by Mr. Prithviraj Kothari, MD, RSBL

As we just thought gold was acting positive and making a comeback, it proves us wrong by the end of Friday.

Gold erased this year’s gains earlier this month on the outlook for higher borrowing costs as the U.S. economy improves. Bullion has since rebounded as the Fed signalled a worldwide economic slowdown may delay interest-rate increases and as equities to commodities slid.

The week was decent enough for gold in the domestic markets, but then internationally showed a sideways performance.

Internationally, gold prices declined after the U.S data reports were in. The better than expected consumer sentiment data lowered gold's safe haven appeal while on the other hand the ongoing concerns over global economic growth and a recovery in global stock markets gave the yellow-metal some support.

Equities and bond yields dropped sharply and the uncertainty over the Fed's hike in interest rates have changed the sentiment for gold from bearish to neutral. Gold showed mixed trends in the week over various economic figures coming in from US

• U.S retail sales and inflation numbers slumped
• Core Retail Sales dipped 0.2%, its first decline since April 2013.
• This indicated to a decline in consumer spending which one of the key indicators of economic growth
• PPI fell by 0.1%, after a reading of 0.0% a month earlier
• US Unemployment Claims dropped to 264 thousand, marking a 14 -year low. 
• Manufacturing numbers were a mix, as Industrial Production gained 1.0%, its best showing since November. 
• The Philly Fed Manufacturing Index dipped to 20.7 points, but this beat the estimate of 19.9 points.

So it was quite a volatile market for gold and there were several factors responsible for this volatility.

DISAPPOINTING GLOBAL GROWTH AND MIXED US DATA REPORTS-

The global equity drop was induced by the European equities sell-off, which was prompted by the negative August industrial production data from Germany and the market's disappointment with the lack of further monetary announcements by the ECB to fight deflation and a likely recession in Europe. The September U.S. retail sales of -0.3%, an inflation expectation of 1.5% in 2019, and foreign growth slowdown have fuelled growth recovery concerns in the U.S. The September manufacturing output climbed 0.5% compared to -0.5% in August, which can signal that the U.S. recovery is holding up.

GOLD DEMAND

The global equity tumult and the ongoing geopolitical concerns have raised the appetite for gold even though the inflationary pressure has created a negative attitude for gold.

The U.S. SPDR gold trust holdings have risen 0.20% this week after declining for four consecutive weeks. 

Moreover demand for gold from India has risen ahead of the biggest festive season of Diwali and many have made their purchases at dips. India's September gold imports jumped sharply to $3.75 billion ahead of the wedding and festival season, data from the trade ministry showed.

Meanwhile in China, the world's largest consumer for gold, has witnessed a significant drop in demand for gold even though price are running low but demand here is also expected to pick up. Growth in Gold mine output from China is set to slow significantly in coming years in the face of declining ore grades and waning profitability, an analyst at Business Monitor International said on Friday.

Now we need to see what's in basket for gold in the coming week. Gold could trade sideways next week and multiple factors are expected to influence the price of the precious metal.

FED- markets will keep an eye in the Fed Chair's speech this Friday

US- Traders will be tracking news coming in from the equity markets, alongside news about a likely global slowdown, the future pace of US stimulus, US interest rates, the Ebola scare in the US , the U.S leading indicators index , the U.S September new home sales, the U.S September CPI, September US leading indicators index and geopolitical tensions the world over.

CHINA-Next week, we will monitor the September China industrial production data, the Q3 China real GDP growth.

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 -

"Is Gold Making A  Comeback?"

http://riddisiddhibullionsltd.blogspot.in/2014/10/is-gold-making-comeback.html

BULL V/S BEAR

by Mr. Prithviraj Kothari, MD, RSBL

Over the past few days gold has been playing touch and go with $1300 mark. It has enjoyed a recovery as it moved strongly higher off the $1275 level. In the past week, gold was seen falling sharply at the key level of $1275. In fact, before plunging, gold touched the resistance around $1313. 

The market is now divided into bull versus bear market. There are some who are positive about gold and believe that gold prices will move higher while some believe that it will further enter the bear market. 

Lets justify their views-

BULLISH SENTIMENTS~

Uncertain global environment:

Escalating tensions in eastern Ukraine fuelled safe-haven demand for gold on Thursday, offsetting upbeat U.S. data that would have otherwise pushed the precious metal lower.

The tensions between Russia and Ukraine and militant activity in Iraq are keeping gold from falling back. Certainly people are concerned about the military situation in Ukraine, Syria, and Iraq. There were news that more than 100 Russian soldiers were killed in eastern Ukraine in a single battle this month while helping pro-Russian separatists fight Ukrainian troops.

Rising demand for physical gold:

Moreover, we have seen over the past years that September is one of the best months for gold in terms of physical demand. Over the last 20 years, the yellow metal has seen an average gain of 3% in September.

In India, August marks the onset of the festive season and people buy heavily as September sets in. August 29th has marked the beginning of the festive season with Ganesh Chaturthi and will go on till Diwali. Ahead of this expected demand Indian jewellers and dealers will be stocking up in the coming weeks, so it should affect prices

Along with this, we all see the wedding season setting in and no other metal can replace gold in the so called big fat Indian weddings. Be it jewellery, gifts or any other investment purpose, gold has always been India's first choice. 

Moreover demand from rural areas is also expected to rise as India witnessed a much better monsoon than expected. The majority of India's gold demand comes from rural areas, so the monsoon weighs heavily on purchases.

BEARISH SENTIMENTS~

Strengthening Dollar:

Gold has been pulled the winding down of the US QE program and a probability of rates hike. Probability that the Fed may increase its Fed- Funds rate by mid 2015 will effectively reduce gold price in dollar terms.

US economic development:

This week, important data coming in from US has clearly shown signs of a gradually strengthening economy. The U.S. gross domestic product grew at a revised annualized rate of 4.2% in the second quarter of this year. 

The U.S. Department of Labor said the number of individuals filing for initial jobless benefits in the week ending Aug. 22 declined by 1,000 to 298,000 from the previous week’s revised total of 299,000.

A separate report showed that U.S. pending home sales increased by 3.3% last month, beating expectations for a 0.5% rise. June’s figure was revised to a 1.3% drop from a previously estimated decline of 1.1%

As we all know, any positive data coming in from US has a negative effect in gold prices as gold is pressured by the idea that if the U.S. economy has sustained improvement then the Federal Reserve will start to raise rates, once it ends its quantitative easing program.

Geo-political tensions:

Further there were news that Geo-political tensions seem to have eased out and hence, we saw gold losing its safe haven status and gold prices slipped back below $1300.

Import restrictions:

The lack of any movement to change Indian import restrictions under the new government has also been a disappointment for the gold bulls.

As we see that the market has been divided into two segments: "the bulls and the bears" and as we go through this transition we can expect to see assets outperforming expectations. The market can’t help but exceed expectations since the investors' expectations are so low at this point.

We now see what the market has been awaiting for:

Dates	Data expected
1st September:	The August China NBS manufacturing PMI index and the Euro zone final manufacturing PMI
2nd September:	The U.S. August ISM manufacturing index
3rd September:	The preliminary Q2 GDP of the Euro zone
4th September:	The Bank of England and the ECB interest rates decisions and announcements on 4 September
5th September:	U.S. August non-farm payrolls and the unemployment rate

 

The market will be watching the outcomes of Thursday’s European Central Bank meeting and Friday’s U.S. August nonfarm payrolls report for gold direction. Economists are looking for ECB to take some sort of action, with a cut to interest rates likely.

TRADE RANGE

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1273- $1307 an ounce	Rs. 27,500- Rs. 28,500 per 10 gram
SILVER	$19.15- $19.85 an ounce	Rs. 41,500- Rs. 43,500 per kg

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 - "Uncertainty over Interest Rate Hike!!!"

http://riddisiddhibullionsltd.blogspot.in/2014/08/uncertainty-over-interest-rate-hike.html