Fundamentals for Gold are strong

As we have noticed in the past months, it was mainly the dollar and Fed actions that were influencing gold prices. But last week geopolitical tensions were fueling gold prices.

Gold was on the move in the past week after a display of threat of the military force by the U.S. and North Korea pushed the safe-haven metal back onto investors' radar.

President Trump said on Tuesday that threats by the Hermit Kingdom would be met by "fire and fury," which was followed up a day later by a North Korea threat to bomb the U.S. territory of Guam.
The yellow metal climbed to $1,285/oz as tensions rose this week, the best level in about two months, driving year-to-date gains to around 11.5%.

Gold has always been considered as a safe haven asset in times of uncertainty. The current rally in gold prices is because of the rise in safe haven demand for gold.

President Donald Trump intensified up his orotundity toward North Korea and its leader on Thursday, warning Pyongyang against attacking Guam or U.S. allies after it disclosed plans to fire missiles over Japan to land near the U.S. Pacific territory.             

Gold prices rose early Wednesday amid rising tensions between the United States and North Korea after the North responded to warnings from U.S.

President Donald Trump with a threat to strike the U.S.territory of Guam.   

Though prices rose on Wednesday and Thursday, by the end of the week, prices more or less stabilized. 

Gold prices held steady after touching their highest in more than two months on Friday, as rising tensions between the United States and North Korea triggered safe-haven buying.

Geopolitical risks can boost demand for assets considered safe-haven investments, such as gold. Although more hostile magniloquence between the U.S. and North officials would temporarily boost gold prices, we see outright military action as unlikely and upward pressure on gold prices stemming from the confrontation as limited.

Meanwhile, a lower-than-expected rise in U.S. consumer prices in July suggesting benign inflation could persuade a cautious Federal Reserve to delay raising interest rates until December.                

Gold is seen being stable over easing out of the geopolitical tensions. But still, a minor escalation over the tensions can once again trigger gold prices. Hence the situation currently is quite unpredictable. 

On the other hand, The Fed expects "very weak" U.S. inflation to rebound thanks to a slide in the dollar and to a labour market that keeps getting hotter, one of the Fed's most influential officials said in comments that reinforce its gradual policy-tightening plan

Gold edged down from two-monthhighs on Monday, 14th August, , as the dollar inched up from last week's lowsand investors kept a close watch on any developments on tensionsover the Korean peninsula.

Summing it up we can say that though the threats from the Koreans have lowered, the fundamentals for gold still seem to be strong.

Bullish trends for Gold

Gold prices were holding well up during the past week breaking the long term downward trend that started off in 2011.  A weaker dollar and lower treasury yields has been supporting gold prices lately.
Gold steadied on Thursday after nearing a seven-week high in the previous session as investors awaited U.S. jobs data for further clues on the outlook for interest rate rises.Spot gold was 0.1 percent higher at $1,267.30 per ounce.

Gold rallied through most of July as the dollar fell on reduced expectations for a third U.S. rate rise this year. Inflation has been contained even though the labor market appears to be in its best shape in many years and despite double-digit U.S. earnings growth in the second quarter.

Reduced rate rise expectations tend to weaken the dollar, making dollar-priced gold cheaper for non-U.S. investors.

But by the end of the last week, gold prices were slightly bullish after the release of U.S labor report.
The latest non-farms payroll report on the US employment market was published, showing the economy added 209,000 jobs last month and that unemployment was low at 4.3 per cent, its lowest since March 2011.

This smashed economist estimates that 183,000 new jobs would be added. In response the dollar has popped higher, says Reuters.

The dollar is inversely correlated to the gold price, which is often held as a hedge as the global benchmark reserve currency.

Stronger economic data also raises the prospect of the Federal Reserve voting for a third rate rise this year in either September or December (rate rises tend to hurt non-income yielding assets like gold).
In the two hours after the report came out the gold price slumped by around $13, or one per cent, to $1,255 an ounce.

Gold's recent trend has been largely defined by the fortunes of the dollar, which is good news for gold bugs as the greenback was languishing near 15-month lows earlier this week.

The safe haven metal dropped from $1268 as the July non-farm payrolls figure came-in at 209K, beating the estimated figure of 180K. The jobless rate dropped to 4.3%, while the June trade deficit narrowed more than expected. Wage growth rose to 0.3% as expected.

Now the influential factor for gold remains that whether the dollar continues to strengthen or it may go weaker, which is likely to mean the US Federal Reserve has to remain less than hawkish. Apart from these financial drivers, any pick up in geopolitical issues could also fuel the rally.

Gold likely to be embraced as a Safe Haven

Gold prices have been steadily on decline since early June when the metal traded just shy of $1,300 an ounce.

This week too gold ended on a negative note even though the week began with a different picture.
Gold prices were lying stable at $1,225.24 per oz on Wednesday morning after a prices rise on Tuesday, closing up 0.2%.

However on Friday, gold dipped $5.60 to $1219.10 in Asia before it bounced back to $1227.00 just after morning’s jobs data was released, but it then fell to a new session low of $1207.30 in late morning New York trade and ended with a loss of 1%.  

Spot gold was down 0.7 percent to $1,215.81 per ounce by 1336 GMT, after touching an intraday low of $1,214.40, the weakest since May 9. It has dropped about 2 percent this week and is set for its biggest weekly fall since the week of May 5.

Gold hit a two-month low on Friday after stronger than expected United States jobs data increased the likelihood of another U.S. interest rate increase.

U.S. hiring picked up in June while wage gains disappointed yet again, a mix that may continue to be a puzzle for the economy and policy makers, Labor Department figures showed Friday.

While payroll gains were broad-based and boosted by the biggest jump in government jobs in almost a year, wages were below forecasts, even with the jobless rate close to the lowest since 2001.

It is quite evident from the unrelenatble hiring in June that thelabout market is resiliebt and may lead to a stronger acceleration in wages. At the same time, the month’s data could also reflect a new graduating class and the summer’s seasonal workers joining the labor force -- some likely welcomed by employers who are struggling to find workers.

The data suggested that the job market is attracting people off the sidelines, as the size of the labor force and number of unemployed people increased, indicating more people are actively looking for work. The number of people who went from out of the labor force to employed rose to 4.7 million, the highest in data going back to 1990.

While wage growth is running below the peak of previous expansions, the figures may be depressed by weak.

U.S. non-farm payrolls jumped by 222,000 jobs last month, the Labor Department said on Friday, beating expectations of a 179,000 gain.          

The data brought negative news for gold traders as there isn’t really anything in this number which is going to put the brakes on an interest rate hike.

Nevertheless, the report marks a relatively strong finish for the labor market in the second quarter that should support continued gains in consumer spending in the coming months. Federal Reserve policy makers raised interest rates last month and reiterated plans to start reducing their balance sheet and increase borrowing costs once more this year.

Recent selling has placed enormous pressure as prices broke through critical support levels.  Much of that selling was a result of a shift in market sentiment as the Federal Reserve and the European Central Bank relaxed their respective multiyear quantitative easing programs.

However, markets remain constructive for gold.The bigger picture for gold is encouraging. Despite the U.S. tightening cycle and VIX bear market, gold has recovered. It appears to be looking ahead to a beneficial endgame.

Gold certainly has a way of getting investors’ hopes up. Most recently, it neared $1,300 per ounce in early June, prompting optimism among bulls about a meaningful breakout to come. Alas, gold prices failed to push through that level, and now sit around the $1,250 mark. There are, of course, bullish and bearish arguments to be made but, on balance, gold is currently facing serious headwinds. That’s not to say, however, that there isn’t a long-term bullish case for gold. There is, but it may take years to play out. Simply put, the world is awash in too much debt, be it household, corporate or government.

According to an October 2016 report by the International Monetary Fund, gross global debt (excluding that of the financial sector) stood at $152 trillion, representing an all-time high 225% of world GDP. This overhang risks prolonged economic stagnation, if not a worse outcome. At some point, central banks will be forced to engineer higher inflation rates to lessen the burden of all this debt. Realizing this, investors can be expected to embrace gold as the ultimate safe haven.

GOLD REGAINING ITS SAFE HAVEN APPEAL: RSBL

By Prithviraj Kothari, MD, RSBL

Recently investors have begun flocking to traditional safe-haven assets like gold and eschewing more risky stores of wealth as 2016 has been characterized by frazzled markets and mounting tensions stemming from the global equities rout. 

In recent days, the rally has been driven by erosion in the dollar, which is down to October lows and was last trading 1.2 percent softer at $1.1220 against the euro.

Gold is once again gaining its safe haven appeal as it gets influenced by depressed oil prices and low inflation. These factors are raising concerns over Fed policy expectations and global economic development.

A potential slowdown in the American manufacturing and services industry has created questions over the timing of the Federal Reserve rate hike and target of roughly a two percent fed funds rate by year end.

A majority of market participants do not see a rate hike happening this year, compared to a week ago when consensus was for an increase in July.

Earlier this week, Federal Reserve Bank of New York president William Dudley said that tighter financial conditions would be taken into account at the next Fed policy meeting in March – investors interpreted this as a further delay in a US interest rate hike.

As markets await further news from the Fed, they were also awaiting the US jobs reports to see whether it created a negative or positive impact in the economy.

Trade was volatile following a mixed US employment report, which showed that 151,000 jobs were added in January, missing the 189,000 forecast. However, the unemployment rate did tick down to 4.9 percent and wage growth was strong. December meanwhile was revised down to 262,000 from 292,000.

However, after years of low wages and non-existent inflation, wage growth increased the most in a year at a 0.5 percent gain, besting the estimate of 0.3 percent.

A substantial wage boost shows the labor market is beginning to tighten and it is becoming more difficult for employers to find available workers.

That news along with the reduction to 4.9 percent in the headline employment figure was enough to spur the dollar after it had sunk to the lowest point since October. The greenback last traded 0.8 percent stronger at $1.1127 against the euro.

Gold futures edged higher after trading in negative territory throughout most of the day as a downturn in US equities offset a stronger dollar.

Now it’s becoming clearer that the lows for dollar denominated gold have been seen after an extended, weakening four year bear market. 

The deterioration in the American currency begins as a global equities rout hit all three major economic regions led by fears of a possible US recession and hard-landing in China.

Investors have questioned the timing of the Federal Reserve’s first rate hike and now don’t expect another increase until the second half of 2017, according to the CME Group Fed Watch.

The global macro environment has so far been positive for the precious metals market.

The poor start to the year has investors questioning the timing of the Federal Reserve’s first rate hike, with various Fed members stating the Fed’s policy would monitor and assess financial conditions.

Before the global uncertainty, March was estimated to be the next date for another rate increase as the Fed needed a gradual schedule to reach the target of two percent by year-end.

After weeks of global instability and central banks favoring looser monetary policy, investors have increased their gold ETF holdings, which stood at 1,573 tonnes as of February 2 – a gain of 22 tonnes week-on-week and 92 tonnes month-on-month.

Keeping in mind the global economies, gold prices are expected to strengthen in the near-term, driven by improved spec and investor sentiment, but we do not expect prices to break above the $1,200 psychological level.

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 -
'Best Performing Month for Gold since Jan 2015: RSBL"
http://riddisiddhibullionsltd.blogspot.in/2016/01/best-perofrming-month-for-gold-since.html 

Gold prices Fall after hitting key resistance! - RSBL

                                                               - Mr. Prithviraj Kothari, MD - RSBL

Another buying opportunity or it is a one such half hearted rally? A question that is pushing investors away from the precious metals complex. I would do my best to give you an idea by starting a gist of things that took place over the week.

The above picture depicts the Gold price range for the entire week (Picture taken from RSBL SPOT terminal). The week started off from where it closed, at a doorstep of the key resistance level US$1238. In almost all my previous blogs have emphasized on this particular level, that if broken, we can expect some change in trend. But it didn't. Gold continues to oscillate around USD $1200 with initial support sitting around this level.

Last week did show us, some spectacular movement in Silver where it broke key levels to enter in the range of US$17. Like Gold it did take a beating and US$17 does act as a short term base for the Silver metal. (image taken from RSBL SPOT terminal).


Key levels do make a lot of difference when the metal prices try to change a trend. But what caused this sudden drop:

1. U.S. housing starts jumped to their highest level in nearly 7 and a half years in April and building permits soared, providing hopeful signs for US economy gaining grounds over a dismal first quarter.

2. U.S. CPI data for April showed a +0.1% increase (expected: 0.1%) to mark the third monthly increase. The core CPI too read 0.3% (expected 0.2%), the largest increase since 3-4 years.

3. One of the most prominent news coming out of the week was from Federal Reserve Chair Janet Yellen. While speaking at the Greater Providence Chamber of Commerce on Friday, she addressed, ".... If the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the Federal Funds target rate." A step to increase the rate hike is inversely proportional to gold price rise.


That goes without saying that U.S. data is highly influential for movements in precious metal complex prices as the other data that could have given a better support, weren't that influential:

1.  According to the latest CFTC data, hedge funds and money managers have hiked their net long silver stance to a near 10 month high and boosted their bullish gold bets to its biggest since March (+123k contracts, +77k prior week) for the week up to May 19.

2.  Greece cannot make debt repayments to the International Monetary Fund (IMF) next month unless it achieves a deal with creditors, its interior minister said on Sunday, the most explicit remarks yet from Athens about the likelihood of default if talks fail. European leaders told Greece on Friday to return to the negotiating table for "intensive work" to wrap up a reform agreement before cash runs out, sidestepping Athens' demand for a comprehensive, long-term solution to its troubles.

3. Iraqi forces recaptured territory from advancing Islamic State militants near the recently-fallen city of Ramadion Sunday, while in Syria the government said the Islamists had killed hundreds of people since capturing the town of Palmyra.

4. Russia's gold reserves rose to 40.1 million troy ounces as of May 1 compared with 39.8 million ounces a month earlier, the central bank said on Wednesday.

On the domestic front,  India could allow individuals deposit a minimum of 30 grams of gold with banks in return for interest payments to help monetize large quantities of the metal lying with households, a step that is aimed at cutting expensive imports. India released a draft documents of gold monetization plan on Tuesday.


Looking at the price jump from Silver, it does look a strong price comeback for me. I have always asked my readers to be invested in Silver. A metal that has multiple functionality.

With the FED meeting round the corner at Greek debt payment on June 5th, a lot more lies for the price movements in precious metals. Still the range play continues and strong conviction from Bears and Bulls is lacking.

It was a memorial day in US and spring bank holiday in UK, due to which price movements were muted yesterday.

TRADE RANGE:

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1194 - $1238 an ounce	Rs.26,700 - Rs.28, 500 per 10g
SILVER	$16.70 - $18.00 an ounce	Rs.38,500 - Rs.42,000 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 - RSBL: GOLD CONTINUES TO RISE!
http://riddisiddhibullionsltd.blogspot.in/2015/05/rsbl-gold-continues-to-rise_17.html

RSBL: GOLD BELOW PEOPLE'S RADAR

                                                                                   -By Mr. Prithviraj Kothari, MD, RSBL

Currently, the gold markets seems to be more like a see saw as it remains directionless amid mixed economic data.

Gold got a little lift from its downward trend.  Prices gained 1% for the week as a whole, after revisions to US payrolls data, from March and February, sparked speculation that the Fed could refrain from hiking rates in the immediate future.

The members of the Fed’s policy board are locked in what has become an increasingly public debate on when will be the right time to raise interest rates, which have been near zero since December 2008.

Gold remained quite stable and was fairly unchanged on Friday afternoon trading sessions after a lukewarm US jobs report failed to answer many of the questions surrounding the US economy.
The spot gold price of $1,185.00/1,185.80 per ounce was up $1.40 on the previous session’s close. It peaked at $1,193.80 shortly after the release of the US jobs report.

Let’s have a look at the data released during the week-

Employment Data- The US economy created 223,000 jobs in April, which was essentially in line with the 228,000 forecast, while the unemployment rate dropped to 5.4 percent from 5.5 percent in March. Average hourly earnings increased 0.1 percent, slightly below the 0.2 percent expected.
But payroll employment for February was revised from 264,000 to 266,000, and the change for March was revised from 126,000 to 85,000. With these revisions, employment gains in February and March combined were 39,000 lower than previously reported.
The report said that the unemployment rate remained unchanged at 5.4%. The participation rate was also little changed at 62.8% last month.

Since April 2014, the participation rate has remained within a narrow range of 62.7 percent to 62.9 percent. Wage growth saw a smaller than expected rise last month, increasing by three cents or 0.1% to $24.87.  Over the past 12 months, average hourly earnings have increased by 2.2 percent.
The average workweek remained unchanged at 34.5 hours. The weak wage growth was also “disappointing” and could keep the Federal Reserve postpone an eventual rate hike. A trend of firmer wage growth needs to be seen before “before Fed officials are ‘reasonably confident’ that inflation is on the path back to their target.



China- the Chinese trade surplus at $34.1 billion in March was up from $3.1 billion in February but below the expected $34.5 billion. As well, exports and imports both fell further than expected.

German- German industrial production disappointed at -0.5 percent as did the German trade balance at 19.3 billion euros. But Italian industrial production at 0.4 percent was better than expected.
ADP- In another precursor to today’s data, the ADP figure on Wednesday at 169,000 was below the forecast 199,000. A higher number today, however, could underpin a surge in the dollar and ultimately dampen any near-term prospects for gold – particularly while many investors are building the case for a delay to any interest-rate rises.


Dollar- The complex shrugged off a stronger dollar, which at 1.1200 against the euro this morning was building on gains of 0.66 percent on Thursday after US weekly jobless claims at 265,000 were better than the forecast 277,000.

Most financial markets were looking a little stretched, which could create volatility, ultimately supporting gold prices.
If the Federal Reserve is not that confident of a positive economic growth then it is quote expected that the first interest rate hike would be further postponed, which would further benefit gold.

Any negative data coming from US could drive up gold prices above $1200 an ounce.


In the week to come there are two major economic reports that ill have analysts glued to it.
1)    April Retail sales report to be released in Wednesday
2)    Regional manufacturing data for May to be released on Friday from New York

The retails sales reports is expected to rise 0.3% in April. Forecasts for the Empire State survey, show economists expect the index to rise to 5.2 this month, after falling to negative 1.2 in April.

If any of the reports come out negative then it would have a major impact on Fed rate hike expectations.
A weak retail sales number for April still isn’t going to stop the Fed from hiking in September.
Gold has fallen below people’s expectations and it will take something significant to get it back their trust. Until something unexpected happens, eventual rate hikes will continue to overhang the gold market.

Although gold is expected to remain range-bound next week, some analysts do see some positives that could help prices hover above the $1,200 an ounce level.
With little economic data to provide any solid direction for gold, some analysts are looking at outside markets for some guidance.

Apart from the two major US data reports analysts will be tracking the following-
⦁    Bank of England's (BoE) interest rate decision
⦁    GDP data from the UK, Germany and from the Eurozone

Any unexpected geopolitical event like The Greek crisis, for instance, could prop up prices if Athens and EU officials fail to reach a deal needed to release bailout money to the cash-strapped nation.

Analysts are unsure as to how gold prices will move next week and expect bullion to take its cues from the financial markets, where any sign of volatility could help boost the metal's safe-haven status.

TRADE RANGE

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1178- $1220 an ounce	Rs.26,500- Rs.27,500 per 10g
SILVER	$16.00- $17.20	Rs.36,000- 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 -

"A Volatile Week Waits For Gold"

riddisiddhibullionsltd.blogspot.in/2015/05/rsbl-volatile-week-waits-for-gold.html

LOTS OFTHINGS TO SMILE ABOUT FOR PRECIOUS METALS

                                                                                                      - By Mr. Prithviraj Kothari, MD, RSBL

Though we did see some trading in precious metals on Jan 1st and 2nd, it was the week from 5th-9th Jan that was actually considered the first volatile trading week of 2015.

The main news doing the rounds for the week was from US- minutes of the recent FOMC meeting and the non-farms payroll report.

Apart from the macro reports there were the following financial reports that were out in the week.

• US non-manufacturing PMI, factory orders and trade balance monthly reports.
• Europe, MPC rate
• The EU flash CPI
• Unemployment report,
• GB’s manufacturing PMI
• Germany retail sales
• The French trade balance.
• In China, CPI and trade balance
• And several economic reports from Canada and Australia.

But of all the above mentioned reports, the most influential for gold was the unemployment report.


Gold was seen to have a positive start for the week as it firmed above $1200 an ounce on Tuesday hitting a near three-week high, as tumbling global equities and concerns over Greece's future in the euro zone prompted investors to seek safety in the metal.

The uncertainty behind the euro zone is once again tempting investors to run after gold as a safe haven asset. This risk off sentiment in the markets may help bullion be stable at its recent upswing.

Adding to this we also saw that holding in the world’s largest gold-backed exchange traded fund- the SPDR Gold trust, rose 0.25 per cent to 710.81 tonnes on Monday, though still near a six-year low. But this rise did reflect improving investor sentiments towards gold.

Bullion traded in a ranged manner for most part of the week while volatility was high on Friday. The Greenback jumped on likely positive economic reports from the US coming week whereas speculation increased that Fed might talk about raising interest rates as also anticipated from its monetary policy minutes report due next week and likely putting weight on Bullion.

We have always seen that precious metal markets and the equities markets are inversely related. This week too, we saw precious metals rising while equity market and commodity bellwethers including copper and oil hit fresh multi-year lows. After a disappointing end to 2014 gold is beginning to build a base above $1,200 an ounce – the metal advanced 1.2% to $1,223 an ounce in late trade Friday, the highest since December 11.

Gold's gains since hitting four-year lows early November now top 7% and is made more remarkable by the fact that the advance has come despite a rampant dollar which hit a 12-year high against major currencies yesterday and a Friday jobs report that confirmed that the US economic recovery remains on track.

Though the market players were a lot dependent on the non-farm payrolls report, it did not show much after effect on gold.

The gold price wobbled briefly but was ultimately unaffected by a non-farm payrolls report that, while mostly positive, was not potent enough to shift the Federal Reserve’s rate-rise timeline.

Total non-farm payroll employment rose by 252,000 in December, which beat the 241,000 forecast, while the unemployment rate declined to 5.6 percent, the US Bureau of Labor Statistics reported today.

Additionally, the change in total non-farm payroll employment for October was revised to 261,000 from 243,000 and the change for November was revised to 353,000 from 321,000.
The forthcoming labor reports are expected to create added significance as there are expectations that the Federal Reserve in on the verge of raising interest rates. The current market consensus is that rates will rise in mid-2015 although this is a moving target that will be dictated by jobs and inflation data.

As said earlier, too gold is one such commodity which takes price direction from macro developments rather than its own demand-supply wherein we feel downside risks for the commodity may stay in the near future



- Previous blog - "An Impressive start For Gold In 2015 But A Dull End"
http://riddisiddhibullionsltd.blogspot.in/2015/01/an-impressive-start-for-gold-in-2105.html