Pause - Gold price rally!

Gold price rally has taken a pause for the first time this year. Fed’s stimulus cut and Chinese New Year holidays have created a major impact on the yellow metal prices.  

                                     

         

Fed expectedly tapered $10 billion to $65 billion a month, second such move by central bank to cut back on the stimulus program. In a unanimous decision at the meeting the move was taken, saying labour market showed further improvement and household spending, as well as investment had advanced more quickly in recent months. What followed with this announcement was the rise of bears. Gold fell around 2 percent on Thursday, its biggest one-day drop in more than a month. Signs of faster U.S. economic growth have increased bets that the Federal Reserve would look forward to end the QE3 programme as soon as possible. Moreover when you do not have the largest physical buyer in the market, finding some support is obviously difficult. It shows how much important is Chinese demand for Gold. This was supported by sharp emerging market sell off, which had boosted gold prices earlier this week, hitting gold's safe-haven appeal.

Gold ETF flows were pretty mixed, with the SPDR GLD holdings rising 2.1 tonnes, while ZKB holdings fell 1.9 tonnes and Deutsche Bank's ETF lost 970 kilos.

I did note that U.S. economy grew by a respectable 3.2% annualized in Q4 but the reduction of China’s HSBC Final Manufacturing PMI data to 49.5 in January and Manufacturing PMI to 50.5, indicates that the global economy is still fragile. Nevertheless, as the stock prices stabilized and the emerging countries vowed to stem the currency panic, the U.S. Dollar rallied while the gold prices fell. The U.S. dollar strengthened and the S&P 500 stock market index rose more than 1 percent after data showed that robust household spending and rising exports have supported US growth.

In other precious metals, platinum fell nearly 2 percent, tracking losses in gold.  Platinum mining in South Africa, which accounts for 70 percent of global supplies of the metal, has been curbed since the Association of Mineworkers and Construction Union called its members on strike on Jan. 23 at Anglo American Platinum, Impala Platinum Holdings Ltd. (IMP) and Lonmin Plc. (LMI) The AMCU is dominant in platinum, with more than 70,000 members, and is demanding that basic wages be more than doubled to 12,500 rand a month. Talks aimed at resolving the dispute resume tomorrow, in Pretoria. While the negotiations have failed to achieve “tangible progress,” the companies and the union were pursuing a settlement, AMCU treasurer Jimmy Gama said. Even with all this, metal drew little support from the news that South Africa's AMCU union had rejected a 9 percent wage offer from leading platinum producers.

As expected the bears started to take the overhand in Silver during the same sell off. It touched a low of 19 USD levels, which had been the lower band since November. It does act as a major support for the metal.

Despite Thursday's pullback, gold was still 3 percent higher year to date. Gold has outperformed the S&P 500 by 10.2% this year. 

The Emerging market’s currency sell off that happened this week makes me think that the need for alternative currency will never diminish. With a weaker currency, Governments across the world are trying to boost their economic growth wherein lower inflation levels eventually grow when the monetary debasement continues. This leads to devaluation of local currency and in turn Gold prices shoot up in local markets as people look forward to protect their wealth in this alternative currency. This phenomenon is slowly but steadily being witnessed across various countries around the globe and specially emerging markets.

For the first week of February, we need to watch out for US ISM Manufacturing PMI on Feb 3, US ADP Non-Farm Employment Change and US ISM Non-Manufacturing PMI on Feb 5, the U.K. and the ECB monetary policy decisions on Feb. 6 as well as the January U.S. non-farm payrolls and unemployment rate on Feb. 7.

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 YELLOW METAL IS ALL GOING GREEN"

http://riddisiddhibullionsltd.blogspot.in/2014/01/the-yellow-metal-is-all-going-green.html

GOLD ROLLING AROUND PAY ROLL

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

New Year’s first full week began with a green note for gold where the weakness on Wall Street widened bullions rally.

However, Gold fell on Tuesday and Wednesday.  An expectation of a positive US jobs data (slated to release on 10th Jan), compelled investors and traders to believe that the Federal Reserve will continue to scale back its monetary stimulus on the pillars of a recovering economy.

After a consecutive fall of two days, gold prices gained momentum on Thursday ahead of the key U.S. nonfarm payrolls report. This report was a deciding factor for the Fed whether it will continue its tapering. The change in private payroll data by ADP on Wednesday showed a strong increase by 238,000 and also exceeded the prior figure of 215,000 for the month of November.

In either ways, traders were ready for some volatility in precious metals.

Finally the tussle between bears and bulls end with the release of Non-Farm Employment Change data released on Friday where Bulls gained an upper hand. A weaker than expected US jobs data supported the fact that US Federal Reserve would now go slow on its tapering.

US nonfarm payrolls rose just 74,000 in December, the smallest increase in nearly three years and far below the 196,000 forecast by economists. The unemployment rate fell 0.3 percentage points to 6.7%.

The year began on a good note for gold and it has performed well till date. Since the beginning of 2014, gold has rallied 3 per cent compared to its 28 per cent loss in 2013, which has been one of the worst performing years for gold.

Although gold is consolidating in the $1,215 to $1,250 range, my technical view sees that internationally the metal is a sell into rallies. The FOMC minutes from the December FOMC meeting, released Thursday morning IST, provided little information that the market has not already priced in. Therefore, ETF holdings have likely to continue their downward trend for the time being while the Fed slows its asset purchases.

The current market trend seen in the first two weeks of 2014:

Global ETF holdings keep falling, losing another 2moz in the last three weeks to reach 56.9moz. - The world's largest gold-backed exchange-traded fund, New York's SPDR Gold Share, reported its first outflow of 2014, of 1.5 tonnes, taking its holdings to a 5 year low of 793.21 tonnes

Meanwhile SGE volumes have picked up ahead of Chinese New Year on 31 January. Trading volumes on the SGE, a physical platform, have also picked up. Volumes hit an eight-month high on Monday, but the buying pace has now slowed from that peak The Chinese New Year, which will be celebrated on Jan. 31, typically prompts a spurt in bullion purchases as the precious metal is bought for good fortune and given as gifts. Premiums for 99.99 percent purity gold on the Shanghai Gold Exchange (SGE) climbed to over $20 an ounce this week, up from single digit premiums late last year. 

Indian premiums over spot remain high and will likely continue until the end of the wedding season in Feb­ruary or until the Indian government brings about a change in policies

Meanwhile, Ben Bernanke, who steps down as head of the Fed at the end of January, gave an upbeat assessment on Friday of the U.S. economy in coming quarters, though he did temper the good news in housing, finance and fiscal policies by repeating that the overall recovery clearly remains incomplete.

Gold support is at $1,233 and $1,227. Resistance is at $1,262 and $1,275.

Silver support is at $19.30 and $19.75. Resistance is at $20.42 and $20.54.

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 -

"Precious Sweet Revenge- Whats Next??"

http://www.riddisiddhibullionsltd.blogspot.in/2014/01/precious-sweet-revenge.html

2013-2014 Gold view by Prithviraj Kothari - ET now (+playlist)

2013's LAST BLOG!!!!

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

As I begin to write the last blog of 2013, I would like to thank all my readers, followers and friends who have been through this journey. Though it has been just two years since I started my blog, your extended support and constant following has made sure that I do not take a break. 

It is for the first time in 30 years that gold is heading for a negative return. In fact 2013 has been one of the worst years for gold. With the end of 2013, we also see an end to a 12 year rally. This decline was driven by low interest rates and  certain steps taken by global central banks to foster the economy. 

Gold was once again seen trading at 1185 (the low it reached in June 2013). This drop came in when the Fed announced its tapering plan. This was the same reason that had plunged gold prices in June when the Fed had for the very first time stated that it would soon taper its QE. Though that time there was a lot of uncertainty prevailing in the market as to how and when the scaling back would be executed, until Fed finally implemented the tapering plan in December.

Gold traded flat around $1,200 an ounce on Tuesday as activity slowed before Christmas, while signs of a steady U.S. economic recovery could deter investor interest as the metal heads for its biggest annual loss in 32 years.

U.S. economic data on Monday showed consumer spending rose in November at the fastest pace since June, while consumer sentiment hit a five-month high heading into the year-end.

The euro zone crisis has more or less stabilised, global economy seemed to be improving and the US too plans to taper its QE. Though all this makes gold a bit unfavourable in the year to come there are loyal investors who have still not lost faith in gold. 

A risk of deflation could push gold prices higher in 2014. Although perceived by many as a negative for gold such worries could exacerbate the debt problems of weaker euro zone economies and force the European Central Bank to loosen monetary policy further, boosting gold prices.

Another supporting factor for gold could be the Fed's continued asset purchase program. Although the central bank has announced a small taper, it will still be pumping large amounts of stimulus into the economy, which should be supportive for gold. 

Most importantly China’s support will always be crucial to Gold. Frankly, Gold is carrying along with it a big burden of uncertainty in 2014.

As the economy improves, Silver and Platinum demand will surely rise faster as compared to Gold. With the current policies by the central banks across the world, these precious metals are to be watched out for the year 2014. 

Apparently, the poor performance in 2013 has left the precious metals looking less attractive compared to other assets, including equities. But, Gold should and always be considered as a safe haven asset. Being in this industry for so many years, I would always recommend some part of portfolio allocation towards Gold and other precious metals.

The trade range for gold is expcted to be around Rs. 29,000- Rs. 30,000 per 10 gram in the domestic market.

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- Past Performance, Present Prices & Potential Predictions"
http://www.riddisiddhibullionsltd.blogspot.in/2013/12/gold-past-performance-present-prices.html