LOTS OF IF's AND BUT's FOR GOLD

-by Mr. Prithviraj Kothari,MD,RSBL

Last year it was Syria...This year it’s Ukraine. Geopolitical tensions have always been a booster for gold and other precious metals and it has helped gold in enjoying its safe haven appeal as it always does in times of economic turmoil recession, inflation etc.

This week gold remained on the top and showed some interesting record movements too.

Gold prices bounced on Friday during the trading hours, rising 3.3 per cent from last week's close at 1385$ per ounce, a level not witnessed since early September. Gold sailed through US$1,380 and was on course for a sixth successive week of gains as the situation in Ukraine showed no signs of easing.

Apart from the Ukraine Crisis deceleration of Chinese economic growth has dampened the investors risk appetites. Retail Sales and Industrial output figures were out this week and it has been quite disappointing. According to MNI, a Chinese Government source said not to panic if 1Q GDP would be below target. This once again raised the question that the all so hyped China and its economy and its hunger for gold was just a temporary thing? Well we need to wait and watch

This uncertainty surrounding the rising economies has to an extent eroded investors confidence. The catalyst for a shift in risk sentiment remains to be seen as the market shrugged off positive US data overnight, suggesting the potential for a lacklustre reaction to upcoming Consumer Confidence figures.

Gold continues to be well supported as Russia is seemingly un-phased by the prospect of sanctions from the West. The population in the Crimea province votes this weekend on whether to secede from the Ukraine, with the way the ballot has been set out seemingly certain to guarantee that is the outcome say observers. It is likely to be followed by the US and its allies imposing sanctions on Russia on Monday, potentially starting a round of tit-for-tat retaliation with serious implications for financial markets and the US dollar.

The last time gold had such a gold run was in July/August 2011, soon after which the metal started its climb to the all-time record high of $1,921 per troy ounce.

Looking at the week ahead, if emerging markets fears abate and US data continues to improve; traders may ease out of safe-haven plays like US Treasuries. The resulting rise in yields would likely help the greenback to recover some lost ground, which in turn would weigh on gold prices. 

If situation in Ukraine results in unrest or rioting, gold prices would breach $1,400. But if the Ukrainian situation either resolves itself in the coming days or stabilizes to the current standoff and does not further escalate gold could sell off quickly — returning towards $1,300 an ounce. 

Lots of ifs and buts for the Gold next move! But one thing is clear, safe haven appeal of Gold will always be there.

For the week gold is expected to range between $1364-$1420 an ounce in the international market and Rs.29,500-Rs.31,500 per 10 gram in the domestic market.

On the other hand, silver is expected to range between $20.55-$22.00 and Rs.45,000-Rs.48,00 in the international and domestic markets respectively.

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 Trapped?"

http://www.riddisiddhibullionsltd.blogspot.in/2014/03/gold-trapped.html

THE CHANGING CHINA

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

Amidst all the chaos that has happening at the Global level, I feel we should just relax a bit and understand what gold is really up to. At the current levels, it would be tough to make any short term predictions from Gold or Silver price levels. But lets take a recap and try to work out something...

The yellow metal price by the end of 31st Dec, 2013 ended a 12 year rally which saw trading below $1200.This decline was driven by low interest rates and certain steps taken by the global central banks to foster the world economy. 

But in 2014, gold showed a remarkable re-bounce and touched 1327$ an ounce this week. On Tuesday, gold reached 1332.10, its highest since October. Last week gold gained four percent and this week it followed suit. Thursday too saw gold moving up as dollar gave up gains. By Friday, gold was seen gaining for a third consecutive week on uncertainty over the stimulus measures. 

Gold rallied to a three and half month high earlier this week after reports stated that US economic indicators were disappointing. A report showed that existing US home sales fell more than expected to an 18 month low in January. This sparked speculation that the Federal  Reserve might slow the tapering of its bond purchases.

Expectations that US Federal Reserve would maintain the pace of a withdrawal of monetary stimulus may diminish gold's investment appeal as a hedge against inflation. 

Apart from the FED's QE3 uncertainty, there are various factors that influence gold prices. The general global investment factors, or monetary policy or economic strength. The move to raise the US debt ceiling limit to unspecified limit until next year March will surely support Gold prices.  But lately, the most important factor has been the Chinese demand for gold. This has held up gold prices strongly. The Chinese demand for gold has helped in boosting gold prices at a time when the Fed's monetary stimulus measures have been driving down the prices and the global economy is showing signs of recovery.

Till last year, India was considered the largest consumer of gold worldwide. But according to the World Gold Council, in 2013, China overtook India as the largest buyer of gold. In fact China imported 1066 metric tonnes of gold as the demand for gold bars, coins and jewellery soared 32 per cent to a record high.

*

2014, has just begun and China has already imported exorbitant quantity of gold. This year, the World Gold Council expects China to remain the world’s largest consumer of physical gold. While down slightly from last year’s record level, the research body projects China will still gobble up a robust 1,000 tonnes to 1,100 tonnes of gold in 2014. 

Till 2002, Beijing had barred its citizens from owning gold bars and coins. Even though gold appreciated for a long time in china, the citizens were not able to use it to that extent. but once the government lifted restrictions on gold ownership the Chinese rushed to buy gold and this gave a boost to gold prices.

Moreover, as an economy china has witnessed speedy development. This has also resulted in higher spending power as incomes have risen. Generally, people buy gold as one of the safest forms of investment and also include gold in their portfolios. And given that till 2012, gold has given the best returns in its asset class it's obvious that people are tempted to own it.

The same has happened in China. Though gold dropped almost 25 per cent last year, demand for it from China did not drop and this kept the gold prices moving.

Meanwhile in India, duty on gold that had been levied to rectify the current account deficit has been the major factor for a decline in demand as the precious metal is being sold at very high premiums making the yellow metal even more dearer. The interim budget did not have any changes with regards to Gold import policy or import duty cuts. Gold premium over international price jumped USD 30 on that day.

According to Bloomberg, Silver had its longest daily straight gain since more than 40 years on 18th Feb, after moving higher for 11 consecutive days from 19.08 on 3rd Feb to close at 21.83 on 18th Feb.

Seeing strong physical demand from China and US disappointing economic data, I do feel that Gold price should hover between $1307 to $1360 in the international market whereas in the Indian markets it is expected to be between Rs.30,000 to Rs.31,500. Respectively silver is expected to range between $21.05 and $23.10 and Rs.46,500 and Rs. 48,500.

*goldsilverworlds.com

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 - "Let's Get Gold"
http://riddisiddhibullionsltd.blogspot.in/2014/02/lets-get-gold.html