UNCERTAINTIES FOR GOLD: RSBL

By Mr. Prithviraj Kothari, MD, RSBL

It was September 2011 when gold reached its peak. It’s been years since gold has been out of favor. Does it mean that it’s time again for gold to regain its sheen?

What will happen in the weeks to come is what we all are waiting for , till then lets analyze gold’s price movement- how and why?

Gold was range bound on Thursday morning after the previous session’s price slump when a rally in global equities paused.

Gold did manage to rebound after hitting a 4-week low on Wednesday but many market players still have a negative sentiment in mind for gold.

Gold traded sideways for the week ahead of the much anticipated an talked about meeting of the Federal reserve that’s due on September 16 while investors remain cautious .

The spot gold price was last at $1,107.70/1,108 per ounce, little changed from the previous close. Trade has ranged from $1,104.0 to $1,108.6 so far. Gold slumped to $1,101.5 on Wednesday, the lowest level in a month.

With so much uncertainty surrounding the Fed’s monetary policy decision next week, the near-term outlook for gold can, at best, be described as mixed.

 

Although analysts are slightly more bullish heading into next week, their enthusiasm appears to be tempered. While some analysts are optimistic on gold prices and think that the yellow metal could bounce higher if the Fed delays its rate hike; however gains could be limited as expectations will only be pushed back until December. 

Currently the market is divided into two segments-

Firstly the ones who believe that the Fed would raise rates on September 17 while the others believe the opposite.

Let’s take a brief look at both these segments-

If the Fed hikes rates at first it will be U.S. dollar positive and gold negative, but the tightening could create a selloff in equity markets and capital could start moving into gold.

If the Fed raises rates on Sept. 17 then he would expect gold to fall below support at $1,080. Traders can then lock in profits from that put. In fact this drop could bring in some strong buying momentum, for gold which could later drive gold prices higher at around $1160. 

On the other hand, that if the Fed delays its hike it will be U.S. dollar negative and gold positive in the initial reaction. However, the loose monetary policy will support equity markets and capital will flow out of gold and back into stocks. If the Fed doesn’t hike rates then gold could push up to $1,150 in initial reaction.

Currently gold is being surrounded by a lot of uncertainties.

Though the FOMC meet will be the focus of the market, one should also bear in mind the key economic data slated for release during the week-

• U.S. August retail sales
• Regional manufacturing data
• The consumer price index for August,
• Housing market data.

The Federal Open Market Committee’s two-day policy meeting begins Sept. 16 and gold investors will focus on the conclusion to see if the central bank will raise rates for the first time in nine years. The consensus seems to be that if the Fed tightens, gold will suffer.

Apart from the US markets, another notable market is that of China.

China has now stepped into the global financial market by depreciating its currency, which has sent ripples through emerging market economies and may in turn unsettle financial markets in the months ahead.

The volatility in China’s equity markets has now stabilized, reducing both the tension in markets and the need for safe havens. 
Another positive news coming for gold was from the India market where gold monetization has now been approved.

For now, The FOMC meeting on September 17 is expected to initiate a more definitive price movement, especially if the FOMC decides to increase the Federal Funds rate for the first time since 2006.

Staying positive for the yellow metal, market players are expecting prices to be around $1,200 an ounce by the last quarter of 2015, with sturdy demand coming from central bank purchases.

The primary purpose of this article by Mr. Prithviraj Kothari is to educate the masses of the current happenings in the Bullion world.

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"No Help For Gold:RSBL"
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OPTIMISM FOR GOLD: RSBL

 By Mr. Prithviraj Kothari, MD,RSBL

Those who began to completely disown gold for the past four weeks have now once again been captured by imagination. Gold typically acts as a safe haven – or a hedge – for investors during volatile periods or uncertainty in global markets and it so appears that the precious metal is not quite so useless after all when things get turbulent on the markets.

On July 24, spot gold touched $1,077.50 per ounce, the lowest price since April 2010. Prices remained at that level for a short period before climbing over the past few weeks.

But the tables have turned. Gold prices are preparing to close its second consecutive week in positive territory, showing gains of more than 5% after the market hit a six-week high in overnight activity Friday.

Gold prices surged during Thursday’s US trading session as the multi-year lows seen a month ago have evaporated as short covering boosted the entire precious metal’s complex.

The spot gold price was seen at $1,150.5/1,150.9- around its highest in more than a month.

Trade has ranged from $1,150.3 to $1,168.4 – it’s highest since July 7 – so far.

The past two sessions have seen the yellow-metal jump to the highest price in over a month upon the release of the Federal Open Market Committee (FOMC) July meeting minutes.

Investors read the statement – especially the concern over the slowdown in the Chinese economy – as a dovish tone heading into the oft-discussed September FOMC meeting. Apart from this there were some other factors that contributed to this rally-

Equities- Equities were in retreat once again as Chinese data added to concerns about global economic growth.

Investors looking to rotate out of strong markets are now looking for oversold asset classes, such as gold, to park their profits while corrections are underway. This demand for gold helped push its prices higher as investors shifted focus from equities to the yellow metal.

China- Gold is finally attracting safe-haven demand as concerns over the fallout from China’s devaluation spreads and the market is waking up to the likelihood that emerging market economies are entering another tough time and that could spread to mature economies.

In China, flash manufacturing PMI undershot expectations at 47.1 – below the 50 contraction level. It was the lowest reading since March 2009 and follows the previous poor reading of 48.2.

China’s economic problems are only worsening as recent data showed that China’s manufacturing sector fell to its weakest point in six-and-a-half years.

Many analysts and economists are expecting that continued financial turmoil in China could delay the Federal Reserve from hiking rates as early as September, which would be U.S. dollar negative and gold positive.

U.S. economic data- In a heavy US data day, weekly unemployment claims were at 277,000, near the forecast of 272,000 and holding below the psychological 300,000 mark.

Meanwhile existing home sales in July were at 5.59 million, above the forecast of 5.45 million. The Philly Fed Manufacturing Index in August was at 8.3, besting the 6.9 prediction.

In Wednesday’s US data, CPI in July was up 0.1 percent over the previous month, below the 0.2 percent forecast.

Core CPI – excluding food and energy – was also up 0.1 percent month-over-month in July, again missing the consensus of 0.2 percent.

Over the last few months, various members of the organization have become increasingly hawkish with Federal Reserve chairwoman Janet Yellen expressing a desire to raise rates sometime this year (September), but once again a weak economic report has delayed investor’s expectations.

 Fed Interest Rate Hike-  The July 28-29 FOMC meeting minutes released overnight suggested that the Fed may resist raising rates in September.

However, inflation continues to fall below the Federal Reserve’s target of two percent which has afftcted the delay if a hike which was probable to happen in September.

The minutes of the US Fed’s July meeting showed a committee relatively content with domestic economic activity and labor market progress. The advance in gold prices was largely driven by the dovish Federal Reserve July meeting minutes and as traders scaled back their views on a US interest rate rise in September.

According to the Fed Fund Future, a rate hike in September has been virtually priced out, and a rate hike by year’s end is regarded as only 75 percent probable.

Federal Reserve Chairwoman Janet Yellen has expressed a desire to raise interest rates this calendar year after rates have been at near zero levels since December 2008 which once again set gold prices moving high.

ETF- Meanwhile, inflows in gold ETF holdings accelerated – holdings in funds tracked by Fast Markets have increased to 1,526.70 tonnes.

Greece- In news, rancorous disputes in Greece over an additional bailout and further austerity measures has forced Greek Prime Minister Alexis Tsipras to resign as he called for a snap election next month.

So basically, its lot of uncertainty and turbulence in the world economies that has ignited up the rocket of gold prices and the same is expected to happen in the week to come.

Gold could continue to benefit next week as China’s financial crisis could have more weight on the Federal Reserve’s monetary policy decisions more than domestic economic data, according to some analysts.
Looking ahead, because of gold’s strong gains, optimism is high in the marketplace that this rally will continue in the near-term.

Continued weakness in equity markets, weakness in China and political uncertainty in Greece: all of these have the potential to boost gold higher next week which has recreated bullish sentiments in the market.

Although some economists are expecting U.S. economic data to take a back seat to global financial problems, some of the data that could attract some attention includes July’s durable goods report, housing sales data, and the preliminary reading of U.S. second quarter gross domestic product (GDP) all due for release in the week ahead.

Till then we wait for a new catalyst to push prices higher in the near term.

The primary purpose of this article by Mr. Prithviraj Kothari is to educate the masses of the current happenings in the Bullion world.

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"This Time Its China v/s U.S.: RSBL"

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THIS TIME ITS CHINA V/S U.S.: RSBL

By Mr. Prithviraj Kothari, MD, RSBL

It was China v/s U.S or rather to be precise it was the devaluations of the Yuan v/s the positive economic numbers from U.S.

While one was trying to give the much needed push to gold prices, the other, on the contrary was pulling gold prices down.

Till the middle of the week, gold prices moved upwards and the market was just about to its faith in it. But once the US numbers were out, gold was once again losing its sheen.

Gold got the much needed lift when China roiled global markets by devaluing its currency. Till then gold was travelling on a mostly lower route since mid-June. By the end of the week, however, it appeared the situation was stabilizing, with Chinese authorities on Thursday saying there was no reason for the Yuan to fall further.

In the initial part of the week, Gold prices boosted and the metal regained its safe haven status as news out of China proves to be favorable for gold. The People’s Bank of China surprised markets on Tuesday when it devalued the Yuan against the U.S. dollar for three consecutive days, tumbling the currency by about 3%. 

Gold prices lacked direction on Friday as the People’s Bank of China (PBoC) increased the value of the Yuan while boosting its gold holdings.

The Chinese government released gold holding figures for the second time in recent weeks. The PBoC announced that it bought 19 tonnes of gold last month when prices were at five year lows and Total holdings were at 1,677 tonnes at the end of July, a one percent bump from the previous month.

The gold price continued to slide lower on Thursday afternoon after the dollar strengthened following upbeat US data, and as concerns over China’s economy eased.

Spot gold was last at $1,116/1,116.4 per ounce, down $8.20 on the previous close. Trade has ranged from $1,113.7 to $ 1126.8 so far.

The important numbers coming from the US were as follows-

• PPI month-over-month in July was at 0.2 percent, above the 0.1 percent mark, while Core PPI in July rose 0.3 percent, besting the forecast of 0.1 percent.

• The capacity utilization rate in July was at 78 percent, matching predictions, with industrial production month-over-month in July jumped 0.6 percent, above the consensus of 0.3 percent.

• Preliminary University of Michigan Consumer sentiment in August was 92.9, just off the 93.5 forecast. Preliminary University of Michigan inflation expectations in August were at 2.8 percent, equaling the previous reading.

• The Dow Jones industrial average and S&P were each up 0.3 percent, while the dollar was 0.3 percent stronger at $1.1120 against the euro.

• Core retail sales month-over-month in July was in-line with forecasts at 0.4 percent, while retail sales month-on-month in July matched the consensus at 0.6 percent.

• US weekly unemployment claims were 274,000, near the prediction of 272,000 and the previous reading of 270,000.

The timing of the first rate rise by the Federal Open Market Committee (FOMC) is becoming increasingly important to investors. The FOMC meeting is just over a month away and debate is ongoing whether the Fed should maintain near zero interest rates or raise rates by 25 basis points.

The two main highlights for the coming week are China and the FOMC. While everyone will be on a lookout for any further price-supportive developments out of China or if instead the Federal Open Market Committee says anything to rain on the yellow metal’s parade.

Currently China is proving to be one of the most influential factors for gold prices because the devaluation of their currency sparked interest in gold as a safe haven again and China has reignited the buying in gold.

If the Chinese markets remain more or less stabilized then focus will be shifted on expectations for the FOMC, which holds a policy meeting next month. The Federal funds futures have oscillated lately between factoring in a greater- or smaller-than-50% chance of a tightening in September.

The biggest factor will be Wednesday’s Fed meeting minutes as the minutes are from the July 28-29 meeting, after which there was no news conference.

The picture is expected to get clear on how the Fed is thinking about a potential September rate rise. 

An aggressive sentiment coming out of these minutes will probable pull down gold prices but on the other hand dovish minutes could offer some support

Additionally, traders will keep close tabs on U.S. economic data-

• Monday- The New York Federal Reserve’s Empire State manufacturing

• Tuesday- Housing

• Wednesday- Consumer inflation

• Thursday- jobless claims, the Philadelphia Fed’s business survey and sales of existing homes

 
The focus continues to be on what the Fed is going to do at its September meeting. It’s going to be the fundamental factor across the board as far as commodity markets are concerned, particularly gold.

Apart from this meeting, traders and analysts will also keep a watch on any comments coming out of the European Central Bank, in case policy-makers should hint at increased bond buying known as quantitative easing. Further QE could provide further support to gold prices. 

Given this picture, as of now majority of the market players expect gold prices to fare better in the week to come.

The primary purpose of this article by Mr. Prithviraj Kothari is to educate the masses of the current happenings in the Bullion world.

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"Gold To Be Pressured Downwards: RSBL"

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GOLD KEEPING INVESTORS PERPLEXED: RSBL

                                                               By Mr. Prithviraj Kothari, MD, RSBL

The gold market is preparing to end its fourth consecutive week in negative territory, as prices dropped to a session low at $1,129.60 an ounce, its lowest level since April 2010.

Gold prices remained under pressure after touching a four month low on Friday, as the dollar tumbled against the euro on signs of renewed optimism that Greece may secure fresh funding from its’ European creditors.

With regard to the Greek financial crisis and at the time of writing, after more than 17 hours of negotiations, Greece reached a deal with its European creditors on Monday, pledging stringent austerity to avoid an exit from the euro.
Let’s have a detailed look at what exactly the agreement states.

This agreement gives Greece a chance to obtain its third international bailout in 5 years. (A compendium of as much as 86 billion euros). Moreover it facilitates easier repayment terms on some of its existing debt of more than €300 billion and a short-term economic stimulus plan
But, it will require Greece to accept a wide array of measures, including pension cuts and tax increases, and effectively subject itself to intensive international oversight in order to qualify for the aid.

While the summit agreement averted a worst-case outcome for Greece, it only established the basis for negotiations on an aid package, which would also include 25 billion euros to recapitalize its weakened financial system.

With Greece running out of money and its banks shut the past two weeks, the summit was billed as its last chance to stay in the euro. Greece has been in financial limbo since the government missed a payment to the International Monetary Fund and allowed its second rescue package to lapse on June 30.

Apart from the Greece crisis, there was a vague picture that was put across by Fed Chair Janet Yellen on the interest rate hike.
On Thursday, she said the U.S. labor market had moved to a more normal state, a reason why the central bank is likely to raise short-term interest rates later this year. 

Analysts state that the biggest factor currently influencing gold prices is an expectation of rise in U.S interest rates. Wednesday and Thursday, Federal Reserve Chair Janet Yellen testified before Congress and reiterated that the Federal Open Market Committee feels it would be appropriate to raise interest rates later this year.

“Based on my outlook, I expect that it will be appropriate at some point later this year to take the first step to raise the federal funds rate and thus begin normalizing monetary policy,” stated Federal Reserve Chair Janet Yellen in a speech on Friday to the City Club of Cleveland.  She recommended that an interest rate hike may come before the end of the year. She further said “I want to emphasize that the course of the economy and inflation remains highly uncertain, and unanticipated developments could delay or accelerate this first step.”

By the first quarter of 2015, there was a string belief in the market that a rate hike would be happen in June, given the positive economic reports from U.S. However, the general consensus seems to be that the Fed will delay any rate hikes until January 2016, though many doubt it will take that long.

Although most economists had expected that the US central bank would raise interest rates as early as June and then September, an increasing number of analysts and traders doubt any rate hikes will happen until January 2016.

What came as a surprise or I should say rather say a “shock” to the bullion market was the disclosure by  China of an increase in its official gold holdings for the first time in 6 years.  
China last reported a figure of 1,054 tonnes in April 2009, and now says it sits at 1,658 tonnes today – an increase of 57%. The central bank’s gold holdings make it the fifth biggest gold reserve in the world, surpassing Russia.

Gold prices didn’t move up on the news rather the metal sold off, hitting a fresh 5-year low during the session.

After a broad- based commodity sell-off on Tuesday, which saw the price of gold fall more than 2% hitting a four month low of $1,145 an ounce, the price of the yellow metal ended up on the week to settle at $1162.80 per ounce.

The sell-off last Tuesday was precipitated by the collapse of Chinese equities. AndA, since China is the world’s biggest importer of raw commodities, weaker growth expectations is spooking the markets and there seems to be spillover effect into precious metals.
Once again, investors remain perplexed about the price action of gold, especially after Greece defaulted on its debt owed to the International Monetary Fund and imposed bank closures and capital controls amid its debt crisis.

But, it is unlikely that the price of the yellow metal will remain suppressed for too long as global demand for gold remains strong despite the recent price dip in US dollar terms.




The primary purpose of this blog by Prithviraj Kothari - MD, RSBL, is to educate the masses of the current happenings in the Bullion world.”

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"Gold Directionless"

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