INVESTORS LOSING INTEREST IN GOLD OVER INTEREST RATE RISE

by Mr. Prithviraj Kothari, MD, RSBL

Last week we saw that the dollar denominated all the markets especially gold. It was the strengthening dollar that was responsible for the plunge in gold prices. 

This week it was even more worse. Precious metals tumbled down and the losses coincided with the recovery of USD against leading currencies such as Euro and Yen and the rally of U.S equities. 

The main market movers were the US Dollar and the Chinese economy. 

Though other markets have also seen volatility, the impact on the precious metals markets has been severe. Equities have been on a bull run but commodities have consistently been on the downside and have been hit with sliding prices and withdrawals by investors, squeezing profit opportunities for funds and traders. 

Gold closed at $1205 in 2013 and picked up well in 2014, rising to a high of $1380 in March. But post March, gold prices plummeted and have witnessed a loss of 5.5 per cent so far in September.

Gold prices declined for the third straight week after the Fed raised it approximate for a key lending rate even as policy makers confirmed an assurance to keep borrowing costs close to zero percent for a substantial time.

The chief reason for the recent weakness is the US Federal Reserve's projection for where official interest rates will be heading. The reason why the market has been so reactive to the interest rate rise is that an increase in interest rates and bond yields would raise the opportunity cost of holding gold. Currently gold has is not strong and has been giving negative returns. The strong co relations between gold and US bond yields will further reduce gold prices. Moreover, higher rates also tempts investors to shift to riskier assets like stocks that have been considerable returns. Moreover it continued to set records in 2014.

On Thursday, gold settled at its lowest closing price since the end of December, pressured by the dollar’s move higher after the Federal Reserve meeting on Wednesday

Spot gold was down 0.5 percent on Friday and among other precious metals, silver was down 2.5 percent to $18.01 an ounce. It touched $17.81, its lowest since August 2010.

On Friday the price of gold fell again, reaching a fresh 2014 low following three weeks of straight selling on the back of a strong dollar and expectations of a rise in US interest rates

Globally, we have witnessed financial uncertainty from 2009-2012. This had compelled investors to adopt gold as gold has always been considered a safe haven asset in turmoil.

The Fed now expects that short-term interest rates will be back to normal levels of around 3.75% by the end of 2017.

With the US Federal Reserve announcing a further $10 billion reduction in its monthly purchases, leaving the programme on course to be shuttered next month, it has also made clear that record low interest rates would be around for at least a few more months.

China followed by India are the worlds largest consumers of gold. But this year, demand for gold from both countries faded. Demand in China, which overtook India to become the top consumer of the metal last year, fell by 22 per cent to 351 tonnes in the first half of the year as the country's economic growth slows down, after reaching record levels in 2013. Jewellery fabrication in India, the world's second largest gold consumer, declined by 18 per cent to 296 tonnes in the first half on lower official imports after the hike in imports duty last year.

We still await some rise in demand from both countries because July, August and September are typically months for strong months of Gold performance months as buying from Asia increases – particularly due to upcoming festivals and wedding season in India.

A good gauge of demand is buyers' willingness to pay a premium over the international price.

Gold imports travelling through Shanghai's Pudong International Airport surged by 200 percent month on month since June as the Shanghai Gold Exchange (SGE) announces plans to allow foreign investment into China's gold market.

Some modest signs of increased demand in the physical gold market after a dramatic slump in Asia this year, have emerged.

To conclude, I think that precious metals are more likely to suffer tougher times if the dollar stays strong and if positive data continues to flow in from US. Well if it happens otherwise then gold may witness a bullish run.

WEEKLY TRADE RANGE-

METAL	INTERNATIONAL price	DOMESTIC price
GOLD	$1206 - $1256 AN OUNCE	RS. 26,200 - RS. 27,500 PER 10 GM
SILVER	$1750 - $1825 AN OUNCE	RS.39,000 - RS. 41,000 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 - "Denominating Dollar"

http://www.riddisiddhibullionsltd.blogspot.in/2014/09/denominating-dollar.html

DENOMINATING DOLLAR

by Mr. Prithviraj Kothari, MD, RSBL

Over the fortnight gold has witnessed a severe decline in prices. The first week kicked off with a plunge in gold prices and the same continued this week too. Historically September month has been the best performing month for gold, however this year it kicked off on a negative role as we saw that gold prices have declined by 3%. On Friday, a low of $1225.90 was set when lower than expected Chinese industrial production for the month of August was released. A strengthening US dollar and the expected change to the FOMC's policy have played an important role in this decline in gold prices. Gold has been destabilized by the lethal combination of a stronger US dollar and a supple equities. Adding to it is the lack of inflation in the major economies. 

Let's have a look at major factors which could continue to play negative on gold:

Euro tumbled to multi year lows last week after ECB slashed interest rate by 0.1% across the board as inflation and growth remained a concern.

The surging US dollar has been acting as a bearish factor for the precious metals. The dollar index was at a 14 month high on Friday and was steadily on track to post its ninth consecutive week of gains. A strong US data and a fall in Euro has strengthened the dollar even further and raised expectations that the US Federal Reserve would soon raise interest rates.

On the geopolitics front, U.S. President Obama said Wednesday evening that the U.S. military will use more air strikes against the ISIS terrorists, but will put no troops on the ground in the Middle East. That news was not unexpected and had little markets impact. The Russia- Ukraine cease fire was holding up and the Ukrainian President on Wednesday quoted that most Russian troops have pulled away from the Russia- Ukraine border. 

With geopolitical concerns seems to be easing out, there seems to be little support for gold.

Moreover, Investment demand in Gold has been showing no improvement.  Weak investor sentiment was reflected in the SPDR Gold trust that saw holdings drop 0.32 tonnes to 788.40 tonnes on Friday. Hedge funds and money managers cut bullish futures and option bets in Gold to their lowest in nearly three months, the Commodity Futures Commission said on Friday.

The demand for gold globally has not picked that well this year. Asian countries aren't witnessing the same patterns of buying when the rate was the same in the previous years. Moreover in the past, such price falls would have attracted bargain hunters. Not now.

The 11-year rally in gold prices created a perception that they will only go up. This price fall has broken that conviction, Now people are diversifying their Investments. This trend will increase in the coming years but expectations of a tightening in super-loose U.S. monetary policy would weigh on gold.

Although, gold prices have been declining since last year, the metal does remain an attractive investment in China. Demand for gold in China will grow steadily as the middle class expands and the Yuan is further internationalized which will require an increase in gold reserves.

Looking ahead, the near term outlook for Gold and silver looks towards downside in international dollar terms. This is the direct impact of improving US economy and looming interest rate rises which will continue to discourage investor buying and in fact lead to selling. I do feel that slowly and steadily the rates will be hiked depending on the economy's growth. This will provide the breather for both the metals.


Traders and investors are already looking ahead to next week, and a more robust batch of economic data points, highlighted by the meeting of the U.S. Federal Reserve’s Open Market Committee (FOMC). Its one of the most important meeting where it would debate on  potential overhaul of its guidance on interest rates and would decide on how QE3 can be exited. Next week is also the much-anticipated referendum on Scotland’s independence from the U.K

TRADE RANGE:

METAL	INTERNATIONAL price	DOMESTIC price
GOLD	$1202 - $1252.70  an ounce	Rs.26,200 - Rs.27,500  per 10 gm
SILVER	$18.20 - $19.70  an ounce	Rs.39,500- 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 - "A Booster Month For Gold"

http://riddisiddhibullionsltd.blogspot.in/2014/09/a-booster-month-for-gold.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

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