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

UNCERTAINTY OVER INTEREST RATE HIKE !!!

by Mr. Prithviraj Kothari, MD, RSBL

From December 2008, to September 2011, Bullion futures more than doubled to a life time high of $1,923.70 an ounce. Gold prices sky rocketed as the Fed purchased debt and cut rates to an all-time low to spur economic growth. 

This year, gold bounced once again after its downfall in 2013. 

The metal rose 6.1 percent this year , partly as unrest in Ukraine and the Middle East increased haven demand.

This week investors eagerly waited for the minutes of the FOMC meeting that were to be released n Wednesday and the Jackson Hole Economic Symposium on Thursday and Friday that was expected to bring in some volatility in the market.  Apart from this many economic reports were slated to release-

• CPI
• Housing figures 
• Philly fed index from the U.S
• BOE rate decision and CPI from Great Britain
• Japan’s trade balance
• China's manufacturing PMI
• Retail sales and CPI from Canada.

Let's have a look at the data released from these reports

• U.S. home resale's raced to a 10-month high in July 
• Six straight months of payroll growth over 200,000 jobs per month — the first time that’s happened since before the Great Recession in 2007!  
• There were signs of a strengthening economy as the  number of Americans filing new claims for jobless benefits fell last week
• On Thursday, data released showed that the Business growth in China and across Europe slowed this month
• But U.S. activity picked up speed, leaving a mixed picture of global economic growth.  

This week , gold was mainly hovering around the interest rate news. The entire investment market- be it stock, bond, currency or commodities, is presently pre occupied with the only one question- When will the first interest rate increase happen? 

A positive economic growth from the US economy and an expectation for an early rate hike is expected to pull prices down.

Many researchers are expecting that the forecasting the U.S. central bank to raise rates in mid-2015 but some economists believe that it may happen much earlier.

A slowing world economy on one hand and a strengthening US economy on the other, is giving mixed reactions from the market. Uncertainty prevails and investor anxiety is on the rise. This means there will be higher movement for gold and silver.

It all depends on whether each new piece of economic data is inflationary or deflationary in nature

Though the market has been linked to rising interest rates, some say that it won't have a less negative impact on gold moving forward.

In fact now all eyes are headed towards inflation - a major driver for gold prices.

There is still some uncertainty over inflation because of the unprecedented steps the Fed has taken. Inflation along with rising interest rates will have an impact on gold. 

There are various key influential factors that will provide good support to gold -

• Rising interest rates could halt the free-flow of capital into the record-breaking equity markets and compel investors to take a more self-protective position. 
• A decline in supply  from mining and recycling sector on one hand and rising demand on the other will  raise a spark in gold prices. Also supportive for the gold market is an expected decline in supply, both from mining and recycling.

On Thursday, gold posted its steepest decline in over a month as investors left the market ahead of Friday's speech by Federal Reserve Chairwoman Janet Yellen . Gold fell to a two month low this week after the minutes of the Feds last meeting were released and it showed signs that policy makers may raise interest rates earliest than expected.  But Fed Chairman Janet Yellen also stated in a conference in Jackson Hole, Wyoming that “underutilization of labour resources still remains significant.

The debate now is about "when" to raise the interest rates. Any hike in these rates would diminish the sentiment to own gold. Gold produces no income and struggles to compete with interest-bearing investments such as Treasury bonds and bank deposits, whose yields will rise once market interest rates turn up. At the same time, signs that crisis in Ukraine and the Middle East are having a limited impact on global growth also have reduced demand for gold as a haven.

The Pentagon on Friday condemned the movement of a Russian convoy into eastern Ukraine, calling it a violation of Ukraine's sovereignty and demanding that it be withdrawn and failure of which would result in additional costs and isolation.

The world economy  is being pulled by the tug-of-war being held between the forces of inflation and deflation

In any case, all eyes are headed towards the FOMC meeting in September, which will also have a press conference and could be the one, in which FOMC chairman Yellen offers some more information regarding the next rate hike. The current estimates range mostly between the end of the first quarter of 2015 and the end of the second quarter.

TRADE RANGE-

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1264- $1297 an ounce	Rs. 27,800- Rs. 28,500 per 10 gram
SILVER	$19.00- $19.75 an ounce	Rs. 41,500- Rs. 43,000 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 Sentiments Are Bearish For Gold"

http://www.riddisiddhibullionsltd.blogspot.in/2014/08/the-sentiments-are-bearish-for-gold.html

THE SENTIMENTS ARE BEARISH FOR GOLD

by Mr. Prithviraj Kothari, MD, RSBL

On the first day of last week, gold was down. But it changed direction by Wednesday and bounced back.

This week too there was a lot in store for gold- 

• the GDP for leading economies including Japan, Germany, and Great Britain 
• the U.S PPI, retail sales, industrial production JOLTS, jobless claims and consumer sentiment reports . 
• Germany’s economic sentiment and GB’s inflation report.
• Gold for the month of July was up by over 2 per cent mainly due to the escalating global tensions and the lower than expected US data

As the week began, gold was slightly down, retreating from a three-week high as tensions between Ukraine and Russia eased and investors turned to rising European shares and some withdrew from exchange-traded gold funds. The United States had criticized Russia's military exercises in Southern Russia as provocative step in The Ukraine Crisis. But last week, late on Friday, Russia's Defence Ministry said that it has ended these exercises. This was the main reason for pushing gold prices down. The premium that was built on gold since mid June is more vulnerable to fade as easing Geo-political tensions push gold prices down.

There is a lot of uncertainty in the market surrounding the FED's decision to raise interest rates, that now many market players aren't quite sure whether they should go back to gold particularly when other assets like equities look more attractive.

But how soon will that happen? Nobody knows... Till then Bullion investors will continue to monitor U.S. data releases as the strength of the world's largest economy dictates the pace at which the Federal Reserve tightens monetary policy.

After a few lows, gold stabilized on Tuesday as signs emerged that the stand-off between Russia and Ukraine was hurting confidence in the euro zone economy and on fears a Russian aid convoy heading to Ukraine could further stoke tensions. Concerns over the Ukraine crisis and its financial impact hit economic sentiments in Germany.

Gold is always seen as an alternative investment medium over equities and other assets.

On Wednesday, Gold was above $1300 on Wednesday as downbeat data from China keep investors cautious about gold. This along with the Ukraine crisis and a slowly recovering US economy kept gold prices firm.

Bullion was also helped by data on Thursday that showed the number of Americans filing new claims for unemployment benefits rose more than expected last week. That helped push US yields lower.  Spot gold rose 0.2 percent to $1,315.20 an ounce by 1003 GMT, 

A weak dollar and sluggish US and European data provoked investors to switch to safer investments.

Gold prices were slightly lower on Friday, paring losses on safe-haven buying as equity markets slid after Ukraine said its forces had engaged a Russian armored column on Ukrainian soil in what appeared to be a major military escalation. It was like a roller coaster ride from a near high of $1310 to $1292 and then back to $1310 and a close above $1300.

Apart from the Data reports and the crisis, it was the sluggish physical demand for gold that played a influential role. Physical demand in top consuming region Asia has been sluggish after a record year in 2013, while investors have been cutting positions in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund. The fund reported a 5.36 tonne drop in its holdings last week, its largest outflow since early May.

For the time being the market seems to be bearish for gold (apart from the perceived geopolitical tensions) and I feel investors should sell on the upside.

TRADE RANGE-

METAL	INTERNATIONAL  (Gold/Silver price)	DOMESTIC (Gold/Silver price)
GOLD	$1281- $1320 an ounce	Rs. 27,800- Rs. 29,000 per 10 gram
SILVER	$19.15- $20.20 an ounce	Rs. 42,500- Rs.44,500 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 -
"Appetite for gold rises"
http://www.riddisiddhibullionsltd.blogspot.in/2014/08/appetite-for-gold-rises.html

APPETITE FOR GOLD RISES!

by Mr. Prithviraj Kothari, MD, RSBL

When global risk escalates - financially and politically - gold is always considered as an insurance against it. The speculations that the Federal Reserve may raise interest rates has kept the yellow metal  in small trading ranges around $1,300.

In the previous week precious metals were down throughout the week until the payroll data was released on 1st August which showed that the jobs added were less than market expectations. These reports had raised speculation that the Fed could soon raise interest rates which would then increase the opportunity cost of holding gold. This sent gold to a six week low in the last week of July but was later pushed as the month ended over a report that showed that U.S. jobs growth slowed in July. This strengthened the belief that the Fed may keep interest rates lower for longer.

For the month of August, so far, gold has held within a narrow range of $30 over speculation that the U.S. interest rates may rise. This sentiment was offset by the escalating violence in Ukraine and the Middle East. Since mid- June there have been a lot of major influential factors that have been influencing gold prices-

• Some weeks there were better U.S. data
• The constant tensions presiding in Ukraine and Middle East.
• The Euro zone economy

These and many other micro influential factors have been responsible for the pull and push in gold prices.

Let's have a look on the weekly movements of gold.

MONDAY - with a rise in banking stocks that lifted European shares and a speculation that the Fed may raise interest rates soon, gold edged low as the week began. Spot gold was down 0.2 percent at $1,290.70 an ounce at 1433 GMT, after falling 1.1 percent last week for its first three-week decline since September.

TUESDAY - Gold edged up on Tuesday following disappointing Chinese economic data, but a firmer dollar and stronger European equity markets limited gains. Spot gold rose 0.2 percent to $1,290.63 an ounce during the trading hours. 

WEDNESDAY - Wednesday too gold was on the upper side as it rose 1.6 percent over the continuing conflict in Ukraine. These concerns had put global equities under sustained pressure, thus raising demand for a safe haven asset like gold. And in times of such crisis gold acts as an insurance against risk.

Russia has amassed around 20,000 troops on Ukraine's eastern border and could use the excuse of an humanitarian or peacekeeping mission to send them into Ukraine, NATO said in a statement on Wednesday. NATO issued warning to Russia to step back from Ukraine’s borders.

Iraq's largest dam was taken over by the militants. 

THURSDAY-  Spot gold climbed to $1,314.40 on Thursday - its highest since July 22, and is on track to snap a three-week losing streak. U.S. gold, also up over 1 percent for the week, is headed for its best week in seven.

A build-up of Russian troops on the border with Ukraine and tit-for-tat economic sanctions between the West and Moscow on Wednesday drove investors out of assets seen as higher risk including stocks and into the relative safety of bonds and gold. Moscow banned imports of most food from the West on Thursday in retaliation against sanctions against it over Ukraine, a stronger-than-expected response that isolates Russian consumers from world trade to a degree unseen since Soviet days

Growing fears that Conflict in Ukraine and the middle East could weaken economic growth also pushed bullion prices high. 

Fighting resumed in Gaza between Palestinian militants and Israel after a 72-hour ceasefire expired. 

FRIDAY - Friday too, gold hit a three and a half week high after U.S. President Barack Obama authorised air strikes in Iraq. A Bloomberg heading stated that Obama authorized air strikes in Iraq sent equity markets lower, while Gold jumped 8 USD to 1318 and WTI Crude Oil gained 1 USD per barrel.

Spot gold hit its highest since July 14 at $1,322.60 an ounce earlier, and was up 0.1 percent at $1,314.90 during trading hours. The metal has gained 1.9 percent this week, its first increase in four weeks and the highest weekly gain in seven.

Gold has gained eight per cent so far this year. Bouts of international tension, worries about the business cycle in Euro zone, soft economic data released in Germany all this and much more has lifted demand for assets like government bonds and precious metals. These factors have been so influential that even a strong dollar couldn't offset it.

TRADE RANGE

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1290- $1330 an ounce	Rs.27,500- Rs.29,500 per 10 gm
SILVER	$19.50 - $21.20 an ounce	Rs.42,000- Rs.45,500 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 -

"Interesting Times to Come"

http://www.riddisiddhibullionsltd.blogspot.in/2014/08/interesting-times-to-come.html

PRECIOUS METALS....INDEED PRECIOUS!!!

by Mr. Prithviraj Kothari, MD, RSBL

Ever since I have started my blog, you must have noticed that I first analyse the international markets and then the domestic markets. But since this week was an important and crucial week for gold in Indian market, as it was the newly formed government's first budget since election, I would like to glance through the domestic markets first.

The previous government had over the past two years raised the import tax on gold to 10% from 2% and mandated that 20% of imports had to be re-exported to stem a slide in the value of the rupee and narrow the current-account deficit. There were widespread expectations that some reduction in the import duty would be announced in the Budget. Traders expected at least a 2-4 per cent cut of import tax on gold. Also, some relaxation in the 80:20 scheme that was imposed by the Reserve BANK of India (RBI) last year, was expected.

But traders were left astonished as India's new government left import taxes on gold unchanged in its annual budget. Premium on gold had disappeared in the last two weeks on expectations that the government would relax restrictions on imports as India's current-account deficit more than halved to $32 billion last fiscal year.

After Finance Minister Arun Jaitley concluded his budget speech on Thursday, gold in India climbed $30 above the international price of $1329.50 an ounce. Indian gold futures jumped 2% on Thursday, widening the premium over global prices which had narrowed on the duty cut expectation.

Simultaneously, we saw gold prices zooming in the international markets too. Factors for the same were:

EU Data:  Gold rallied on sliding European equities and a weak euro zone industrial output data. Given the recent weak economic data coming out of the European Union, traders will be closely watching European bond yields, for clues on European investor confidence. The European Union sovereign debt crisis is not that far removed from the market place. 

Chinese Data: Chinese trade data was much below expectations. China’s exports grew by 7.2%, year-on-year, in June, which was below market expectations of a 10% rise

Portugal trouble: There were reports that a major bank or banks in Portugal are in trouble. Europe's stock markets suffered heavy falls on Thursday as troubles at Portugal's largest listed lender, Banco Espirito Santo (BES), sparked fears of a possible return to the dark days of the euro zone debt crisis. Banco Espirito Santo SA sought to calm investors after a parent company missed payment on short-term notes. 

Middle East tensions: Middle East tensions escalated as Israel this week launched a military offensive on the Gaza strip. Heavy fighting too was reported overnight. This once again focused traders attention on the Middle East. At least 78 Palestinians, most of them civilians, have been killed. This situation is a potential time bomb that could further incite unrest in other parts of the Middle East.

Ukraine's fight back: Ukrainian forces regained more ground but sustained further casualties on Thursday in clashes with separatists, while two Western allies urged Russia's Vladimir Putin to exert more pressure on the rebels to find a negotiated end to the conflict. Russia threatened Ukraine on Sunday with "irreversible consequences" after a man was killed by a shell fired across the border from Ukraine, an incident Moscow described in warlike terms as aggression that must be met with a response.

FOMC Meet: The market place has pretty much digested Wednesday afternoon’s FOMC minutes from June. They further stated that the Fed is on track and to end its monthly bond-buying program (quantitative easing) in October. Further there was no specific sign as to when the U.S central bank will start to raise interest rates but there were definitely expectations in the market that it won't take place this year and this sentiment was further reinforced by Wednesdays latest FOMC minutes.

After analyst downgrades of gold that we've all heard over the last year, money is now pouring into the metal at the slightest bit of unease.

The value of the gold funds rose by $5 billion this year as prices rallied 10 percent. The metal has rebounded from last year’s 28 percent plunge that was triggered by muted inflation and as investors shunned the metal in favour of equities. The Hedge funds and money managers increased their bullish bets on Gold by 7,344 lots to 14,272, the highest since March, in the week to July 8. In Silver, they raised their bullish bets by 7,819 contracts to 44,517, a peak since December, according to the data from the Commodity Futures Trading Commission on Friday.

For now, Gold’s performance has proven the bears wrong so far this year. The bulls are being rewarded.

Following the market consensus that had recently emerged, LBMA announce that CME group and Thomson Reuters have been selected to provide the solution for the London Silver Price Mechanism.

TRADE RANGE:

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1324-$1367  per ounce	Rs.28,000-Rs.29,000 per 10gm
SILVER	$20.90- $22.00  per ounce	Rs.45,500- Rs.47,500 per kg

- Previous blog -

"Geopolitical Cover for GOLD"

Link it to: http://www.riddisiddhibullionsltd.blogspot.in/2014/07/geopolitical-cover-for-gold.html