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Showing posts with label debt ceiling. Show all posts
Showing posts with label debt ceiling. Show all posts

Saturday, 4 January 2014


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

In the first trading week of 2014, gold was seen taking revenge to all those investors who shifted from gold to equities and other assets in 2013. Many claimed that gold has lost its glitter and is no more a return generating asset. By its performance in the first week of 2014, gold put a lock to many peaking mouths. In fact other precious metals like silver and platinum followed suit , with platinum touching a six-week high and palladium climbing to a three-week high, heading for its biggest weekly gain since October.

But then again debaters said that gold has shown similar trend in 2013. Recalling gold in 2013 at this time of the year, I remember that gold moved sharply in Jan but then plunged terribly throughout the year. On 2nd Jan, 2013, gold opened at $1664. Then in Feb it was seen trading at $1660 while in March it was $1570. It was consistently seen moving down throughout the year. It crashed drastically in June and touched the 1182 mark on the last day of the year. All the hype and hoopla created by gold in the beginning of 2013, seemed to have vanished gradually by the end of 2013.  

Quantitative easing has always been a positive factor for gold as it held down interest rates and stoking inflation fear. But then on the other side, as labour reports and other data showed that the US economy is improving, it initiated scaling back of the stimulus programme. This is stinging into gold’s glitter.

Many investors lost faith in gold as in bullion-backed exchange-traded products shrank for the first time since the first fund was introduced in 2003. Heavy outflows from gold-exchange traded funds also reflected investors' diminishing interest. Holdings on SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell three tonnes to their lowest since January 2009 at 801.2 tonnes.  

Since October 2013, gold has been performing poorly. As it entered 2014, gold was seen to be in its best performance since October, as it rose to a two week high on Friday. This upsurge was supported by Chinese demand for gold.  Chinese demand is likely to stay strong in the build up to the Lunar New Year on Jan 31st, when gold is traditionally given as a gift.

Based on published data, Chinese physical gold imports will end 2013 at more than double 2012's record levels, at roughly 1,000 tonnes (below data is through October); and who knows how much more demand the unpublished data would uncover?

For gold, the major costs of mining - i.e., mining and reserve replacement - is at least $1,500/oz., per this quote from Gold Fields' CEO, Nick Holland (Gold Fields is the world's fourth largest gold producer). As for silver, St. Angelo proved prices must be above $25/oz. to enable the mining industry to produce positive cash flow. Now as per the current price levels, I fear if the mines can operate, forget making money out of it. 

Expectations that U.S. economy will improve and the rest of the world's growth will stabilise in 2014 have further undermined the case for holding bullion, as investors look to put their money in riskier assets such as equities.

The US Fed has to be very cautious while scaling back its stimulus program as the much claimed recovery is still happening at a slow pace and can take a halt at any point of time.

There is not much evidence that the global economy is improving. A tapering of QE can have negative effects on all the important stock market which is generally considered as an indicator of growth, development and progress

Things do seem to be improving in the Euro zone too.

All these aspects compel us to think that gold & other bullion metals could have a bearish price impact, technically. But fundamentally, supports do remain strong. 

Well it's too early to comment given the fact that there are a lot of important events coming up for precious metals in the months to come. My take would be a Gold’s price to 30% while Silver price rise to 40%.

Gold in the coming week is expected to trade between $1185 to $1252 an ounce in the international market and Rs.29,000 to Rs. 31,000 per 10 gram in the domestic markets

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.
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"2013's Last blog"

Sunday, 15 December 2013


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

For so many years, gold has given gains and has also been the highest return generating asset in its class. But this trend seems to come to an end now where majority of the market believes that gold is now set to enter the bear market after 13 long years.

Varied reasons are responsible for this sentiments- 

A loose monetary policy, continued fear of a further and worse economic crisis due to weak global economic growth prospers and continuous prediction of impending inflation and devaluation of fiat currencies, these are the major reasons apart from the minute ones responsible for creating  belief in the market that the upswing for gold has come to an end.

Bullion surged 70 percent from the end of 2008 through June 2011 as the Fed bought debt and kept interest rates near zero percent to boost economic growth amid the most-severe global recession since World War II.

Interest rates have been kept low by the fed's massive bond buying programme and this has always supported bullion.

But now there is uncertainty over the market that the Fed may soon start tapering its bond buying programme either in march or may be soon in December. This picture will get clear in the coming Fed Meeting to be held on 17-18 December.

Spot gold hit a three week high on Tuesday trading at $1260.24 during the day, It rose as much as 1.6 per cent. This rise was seen gaining momentum, after the market's recent short-covering rally while investors and analysts speculated over the timing of U.S. monetary stimulus reduction

Just after a gain of two days, gold slipped on Wednesday as short-sellers rushed to cover bets on sharp price falls, as a tentative U.S. budget deal returned the focus to prospects for the Federal Reserve to curb monetary stimulus.

As soon as the US retail sales data was out on Thursday, gold fell 2 per cent. The data boosted the dollar and fueled expectations that the Fed could reduce its bond buying programme in somewhere in December itself.

The US data released in Thursday, showed that retail sales had climbed 0.7 per cent. Many traders and analysts in the market are living with the belief that the Fed may start scaling back its bond purchases at the forthcoming meeting to be held on Dec 17-18. This decision would be based on positive economic data coming in from the US on employment, housing, construction, manufacturing and services sector. Another factor that prompts  the Fed to taper QE is the recent budget agreements that shows hope of a shutdown being overcome.

Though gold rose one per cent on Friday after a two day plunge. the marketers still believe that gold is subject to further downfall in the coming week as we witness one of the most important meetings of the Fed. This shall hopefully be a fate deciding factor for the bullion market.

Apart from the retail sales data, some important news came in from the SPDR Gold Trust- the biggest golf ETF. It states that the holding in the SPDR gold trust had fallen the most in nearly two months in Thursday. The limited inflows has restricted an upward movement in gold prices.

But in the Asian markets gold was seen selling at high premiums. Premiums on the Shanghai Gold Exchange for 99.99 percent purity gold picked up to $10 an ounce from $7 in the previous session.

In a sign of the toll that labour unrest in South Africa is taking on mining companies, North am Platinum said on Friday it expected to lose 500 million rand ($48 million) this year due to a strike by more than 7,000 employees and that talks to end the walk-out would resume only next year.

Moreover, there were reports out that North Korea is selling huge quantity of gold to China because of a possible economic crisis in the country. If at all this news its true and it will be a significant driving point for precious metals.

The trade range for gold is $1210- $1270 an ounce in the international markets and Rs.29000 to Rs.31,000  per 10 gram the domestic markets

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.
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"Frenzy Friday"

Tuesday, 10 December 2013


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

All this week Bullion danced to the tunes of Labour report from US.

Gold is down about 28% this year, heading for the first annual loss in 13 years, as solid U.S. economic data has underlined expectations that the Fed will begin curbing stimulus.

The bond-buying stimulus has strongly supported gold prices as it has served to keep interest rates ultra low, an ideal environment for non-yield bearing assets. It so happened that a 2% increase in Gold prices was the biggest one day gain in over a month’s time. This can be attributed to short covering and new fund buying that deal that the FED plan to exit asset purchase scheme will still take time.

Gold prices fell on Thursday but remained range bound after solid U.S. economic growth and jobless claims data; firmed up talk that Federal Reserve will begin scaling back stimulus programs within the coming months. Even though European Central Bank and Bank of England have continued to hold off from any new policy action, markets are fixated on U.S. economic snapshots and any data that gives an idea when the Federal Reserve might start curbing its bond-buying programme.

Gold prices rode a rollercoaster Friday, regaining some ground after Thursday's sharp losses right ahead the U.S. Bureau of Labor Statistics published strong job numbers, to fall sharply after the announcement.

The game was all being played by forecasts. 

On Friday, as the US Labour report was released, gold was seen in a different mood.
Gold climbed in volatile trade on Friday, bouncing from session lows reached after U.S. jobs data beat forecasts, as traders who had bet on even larger losses rushed to cover their positions.

The actual figure was higher than forecast at 203,000, compared to consensus forecasts of 185,000. The rate of US unemployment also fell to a five-year low of 7%, but economists suggested the figures were heavily skewed by the US government shutdown in October. Thousands of government employees who were temporarily laid off returned to work last month. Unemployment rate in the US fell to 7.0% from 7.3% in October. Economists predicted a smaller decline to 7.2%.

Meanwhile, the Commerce Department said personal income edged down by 0.1% in October after increasing by 0.5% in September. Economist did not expect the drop, as they had expected income to increase by 0.3%. The market fell immediately after the figures showed that U.S. employers had hired more workers than expected in November and the unemployment rate had dropped to a five-year low of 7 percent, which strengthened the case for the Federal Reserve to start reducing bond purchases as soon as this month.

Gold prices have now erased some of their losses for the week but were still down 1.2 percent after having dropped sharply on Thursday as data showed the U.S. economy grew faster than estimated in the third quarter.

The majority looks through the noise towards the end goal, i.e. tapering and a slow normalisation of US monetary policy which is coming closer by the day. As a result, at this stage it appears as if rallies will simply be sold into, whether the data beats expectations or not. Gold ETFs seems to liquidate on every opportunity, with the latest data showing ETF holdings are down another 113Koz. Silver should follow gold and as a result remains a sell into rallies.

The Federal Reserve, which holds its next meeting on December 17-18, has said the timing of its tapering depends on the health of the labour and housing markets.

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.

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"China Support for gold"

Sunday, 24 November 2013

"FED" UP?????

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

Post 2008 gold prices have sky rocketed and this made gold an investors favourite. Following the 2008 crisis, investors turned to gold as a hedge against inflation that was expected to rise as a result from central banks effort to stabilise the economy through bond purchases. But 2013 has been considered one of the worst years for bullions as it turned tabled for all precious metals.

Now with the US economy in the recovery mode and with inflation being more or less tame, many investors have disowned and abandoned gold and shifted to equities.

By the end of 2013 we see that god prices have tumbled 26 per cent over the uncertainty that the Federal Reserve will start to cut its monthly bind buying program which has even strengthened the dollar. Global demand for the precious metal fell 21 percent in the third quarter as investors continued to dump holdings through exchange-traded funds and central banks slowed purchases, the World Gold Council said.

After Janet Yellen's statement released last week, many believe that the uncertainty over Fed bond buying program has been lifted. Janet Yellen — the likely next Fed chair — said last week that she would press forward with the bank’s ultra-easy monetary policy until officials were confident a durable economic recovery was in place that could sustain job creation. Gold witnessed selling pressure immediately after the minutes of the latest meeting of the Fed raised supposition that the central bank could taper its bond buying program, as soon as December

Gold declined this week and it enters the sharpest weekly drop in more than two months as gold prices plunged on Friday. Spot gold was up 0.1% to $1,242.91 an during the trading hours, after hitting a fresh four-and-a-half-month low of $1,236.29 in the previous session

Furthermore, gold prices remained under pressure after data that showed that US consumer prices last month rose at the slowest pace in four years. This clearly indicates that inflation has been contained and when inflation is tame who would buy gold.

Summing it up, the week was not so good for gold because:
1. The Fed’s massive bond-buying programme has burnished gold’s appeal as a hedge against inflation
2. Solid US data over the past few weeks was hurting bullion prices as it could bolster the case for curbing stimulus soon.

Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell 3.6 tonnes to their lowest since early 2009 at 856.71 tonnes on Thursday. Outflows have totalled 450 tonnes this year

Earlier this month the European Central Bank announced a surprise interest rate cut which put more pressure on gold. It also drove up the value of the dollar versus the euro and made investors loos its faith in gold as a store of value

Moreover, what cane as a surprise package was the announcement coming in From China stating that they have taken a step further in liberalizing the gold market. Swap trading on the Shanghai based China Foreign Exchange Trade system has been started by interbank gold.

Bullion has slumped 26 percent this year to $1,245.45 an ounce in London, reaching $1,236.88 yesterday, the lowest since July 9. The declines are another blow in what's been an awful year for gold bulls

Virtually it was the same scenario for other precious metals as we saw platinum struggling and silver trying to keep up.

Silver, like gold, is still a sell into rallies.

Gold support is at $1,238 and $1,227. Resistance is at $1,253 and $1,272. Silver support is at $19.50 and $18.85, resistance is at $20.37 and $20.65.

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.

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"QE Support- US reamins fragile"

Saturday, 16 November 2013


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

2013 ends on a red note for gold as it heads for its first annual drop in 13 years.

Gold has seen a lot of movements throughout the year. The main reason for this drop was the uncertainty over the QE tapering. QE was responsible to set record highs for gold and the same is the reason for its downfall in 2013. Even today, QE tapering is under one’s scanner- the question is not IF but WHEN.

Gold has been disowned by many, as investors have lost faith in this yellow metal and it is no longer considered a safe haven asset. Though investors have not been buying much gold, lower prices have boosted the demanded for jewellery coins and bars. These have mainly been purchased by the small time buyers.

Increased central banks liquidity has always benefited gold over the past years. However gold has fallen nearly 25 per cent since the Fed stated that it could begin slowing its $85 billion in monthly bind purchases. This week did see a lot of news impacting Gold prices - Statement by Mrs. Yellen, weaker US dollar, SPDR Gold Trusts holding and the gold demand from China and India.

Statement released by Janet Yellen, who is nominated to take charge of the central bank next year, moved the table for gold. Janet Yellen’s confirmation that she will continue the stimulus program of the fed so long as the economic recovery in the U.S. remains fragile was the big news for the bullion market

A weaker dollar index against a basket of major currencies also boosted gold buying,

Also, prominent hedge fund Paulson & co maintained its stake in SPDR Gold Trust. The SPDR gold ETF saw no change in its holdings and no change in the in the Gold Trust, leaving their holdings at 865.713 tonnes and 172.21 tonnes. These also supported the prices.

Demand from China, India and the Middle East surged a combined 27 percent in the 12 months through September, the World Gold Council estimates. Central banks bought 93t of gold in Q3 2013, reserves up almost 300t year-to-date

With India's 10% gold import duty on top of other capital controls, the price one has to pay for gold in India has reached a record spread of 21.6%. A premium of nearly $120 has attracted lot of Scrap gold in the market.

Gold gained nearly one percent this week till Friday, but prices were pulled back on Friday,
It recovered to be flat on the day after the dollar fell 0.3 percent against a basket of currencies, which followed data showing U.S. industrial output had slipped last month for the first time since July

Headlines about potential production threats continued to hit the wires, with Amplat reporting a two day sit-in strike by 2300 workers and Zimbabwe’s President Mugabe saying it may halt exports of raw Platinum to South Africa in order to force the mining companies to build a refinery in the country. Zimbabwe is the second largest Platinum producing country after South Africa. Further support came from a leak of semi-annual Johnson Matthey Platinum Group Metals Reports. According to an apparent leak by Fastmarkets, Platinum slipped deeper into deficit in the first half of 2013, due to strong global demand growth. It forecast a deficit of 605’000 ounces for 2013, mainly driven by an uptake in industrial usage. Wage negotiations continue in the platinum sector in South Africa. A price range for the next 6 months is of $1360 – 1580 per ozs.

China's domestic mining industry does produce a lot of gold. For 2013, it is estimated to be 440 tonnes.  However, China and its miners have a serious problem. Remaining mineable reserves are put at 1,900 tonnes. So unless China can turn up some major discoveries - and they have been somewhat unsuccessfully looking - then they have less than five years of production remaining. China's government has urged national gold producers to boost development of overseas resources in neighboring countries and in Africa and Latin America, according to its 12th Five-Year Plan which ends in 2015.

Next week, we need to note Bernanke's speech, Draghi's speech, the October FOMC minutes release as well as the US October CPI, retail sales and existing home sales on 20 November as well as Germany November IFO business climate index on 22 November.

Whether gold breaks out of that range depends on the direction of the U.S. dollar and further sentiment about the fate of the Federal Reserve’s quantitative easing program vs. what one has to pay in countries where there are no such controls or import duties.

Gold support is at $1,274 and $1,269. Resistance is at $1,292 and $1,310. Silver support is at $20.60 and $20.38, resistance is at $21.02 and $21.40.

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.
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"All Glitters or Just Jitters for Gold"

Sunday, 10 November 2013


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

Gold made a snake; like movement last week , ending on a downward note as the week concluded. 

The dollar pushed broadly higher against the other major currencies on Friday, after the release of strong U.S. jobs data fuelled further speculation that the Federal Reserve could soon begin tapering its stimulus program. 

Gold has lost about a fifth of its value this year after these news. The bond purchases and low interest rates has burnished gold's inflation-hedge appeal.

However, lately, as the Fed delayed its decision to taper its monetary easing , the market was compelled to believe that the FED may not start withdrawing its support for the economy soon and this gave the yellow metals a rebound in the recent weeks.

The FED also stated that they needed enough evidence about the progress of the US economy to taper its program. Hence this week as the US data reports were released, the market scenario changed.

Gold showed wave like movements this week ending on a downwards pattern as the week concluded.

The prices of gold and silver changed direction again and bounced back on Thursday along with other commodities prices including crude oil and natural gas.

Gold prices fell under $1,300 after a much stronger-than-expected U.S. October nonfarm payrolls report released on Friday.

Having touched 1-week highs above $1419 per ounce on Thursday, gold fell back through $1400 on Friday as European stock markets erased earlier losses.

Among other precious metals, silver was down one percent at 21.53 an ounce and platinum was trading at $1439.49 an ounce, down by 0.6 per cent.

Rallying US equities and a soaring US dollar sent gold to a three week low as bullion underperformed silver and platinum group metals.

GOLD and silver prices whipped sharply Friday lunchtime in London, as new US jobs data matched analyst forecasts with a 175,000 rise in Non-Farm Payrolls for May and a slight rise in the jobless rate to 7.6%.

The Labor Department said 204,000 jobs were created in October, nearly double the expectations going into the report. September and August employment numbers were revised up by a combined 60,000, while the unemployment rate rose to 7.3% from 7.2%. That was likely an effect of the shutdown.

Though researchers believe that the Federal Shutdown have impacted the jobs figures,  the Labour Department said that survey responses have been normal.

In fact, this stronger than expected US jobs report has led to a downfall in gold prices and is expected to continue to do so in the near future.

Gold market watchers said prices fell on thoughts that the stronger jobs report, along with Thursday’s higher-than-expected gross domestic product data, mean the Federal Reserve may consider tapering its bond-buying program known as quantitative easing, earlier than expected.

This news may have contributed to the strengthening of the USD.  The American trade balance deficit declined – exports of goods rose by a larger rate than imports had during September. This news was also a positive signs for the progress of the U.S economy. Nonetheless, there are still concerns in regards In Europe MPC and ECB kept their respective short term rate unchanged.

But any concrete comment can be made only when the debt ceiling crisis (which has been temporarily resolved) will re surface in Feb.

Till then we need to keep patience.

Other reports that will hold importance for gold is the UoM Consumer sentiment, China Industrial Production and Chinas Trade Balance

As of the previous monthly report, China’s trade balance increased to a $27.7 billion surplus; if the surplus will further expand, it could indicate that China’s economic growth is increasing and thus may positively affect prices of precious metals.

Meanwhile, we celebrated Dhanteras and Diwali last week, two festivals closely associated with bullion buying and the country's wedding season, another major driver of gold sales, is in full swing.

But scarcity of physical gold coupled with weak rupee put a huge damper on sales for gold this year.

In fact, gold sales this year have been just 50 per cent of last year's sales. On the other hand we saw more demand for silver and platinum coins.

Nonetheless, as the marriage season is in full swing we see more demand coming in for gold jewellery and the demand supply gap of gold will soon be filled.
the trade range for gold for this week is expected to be Rs.29,000- Rs.31,000 per 10 gram

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.
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"Halloween Hangover for gold"

Sunday, 3 November 2013


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

The Halloween fever seems to have caught hold to gold too as we saw some tricks and treats for the yellow metal.

There were mixed sentiments in the market as the much awaited Fed meeting concluded on the 30th Oct. The Federal Reserve has offered a bundle of surprises this week due to which gold and other precious metals fell on Thursday.

The US Central bank stated that it will keep buying $85 billion in bonds a month for the time being.  The Federals Reeves October policy statement further confused the market as some believe that there is soft growth seen for US while some believe that the situation may worsen.

On Thursday, a sharp rise in the dollar index  broadly pressured commodities after data showed business activity in the U.S. 

Spot gold was down 1.4 percent at $1,323.69 an ounce during the trading hours.

The Fed's comments about the U.S. economy continuing to expand at a moderate pace and lower-than-expected inflation weighed down on gold.

The expectation of Fed tapering further down the road has already been factored into the gold market, and its comment about moderate growth and no inflation triggered some selling.

Moreover as the month ended we saw people shedding off their positions which led to decline in gold prices.

The Fed wants more evidence that the economic progress and growth of the labour market is sustainable. hence they haven't hurried a lot and kept the pace of the QE unchanged for the time being

The U.S. latest weekly jobless claims decreased 10,000 to 340,000 compared to the expectation of 338,000. In Europe, the October inflation rate fell to an almost four-year low of 0.7 percent compared to an expected 1.1 percent, opening the door for the ECB to ease monetary policy further

Nonetheless the Fed has still left open the possibility of tapering open in December or January. This resulted in a decline in gold prices.

However, the market detects a slightly hawkish tone by the Fed, who has left open the possibility of tapering in December or January. As a result, the U.S. stocks and the gold prices got beaten down while the dollar surged. 

Meanwhile, Fed officials continue scratching their heads on what they could do to avert a potential hyperinflation in the near future without damaging the recovering economy.

Gold surged more than 4 percent when the Fed Open Market Committee released its previous policy statement on Sept. 18. Some analysts said the support from U.S. monetary stimulus will eventually fade. 

The market is again divided into two sets of believers- some say that there are hopes of recovery ahead while some say that is going to be a long hard road ahead as the world economy plod along the edge of recession, deflation and then a small recovery. 

While in the Indian markets, the Festival of lights did add much brightness. The demand for gold has not been  as impressive as last year.

Gold sales during India’s festive season have slumped to half their usual levels this year 
India is known as the world’s biggest consumer of gold and sales  traditionally peak around Diwali, the Hindu festival of lights, which is seen  as a particularly auspicious time to buy.    
Diwali has been calm. Sales are down 50 percent compared to last year. There's no demand because prices have soared so much, the economy is slow and inflation is high.
Moreover scarcity of gold has resulted in life high premiums being charged. However, as the 8o 20 policy has been introduced, this demand supply gap will soon be filled and won last much. in fact it will tackled post Diwali.

Gold is expected to trade in the range of Rs.29,500- Rs.31,500 this week.

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.
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"Is it the calmness before a gold thunderstorm"

Monday, 21 October 2013


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

Gold was going gaga over the week. Usually, we don't see much trading, just a few hundred lots of gold futures, on an early Thursday morning in New York. But what we saw this Thursday came as a shock. A wave of buy orders worth over $2.3 billion gushed into the market.

While other commodities declined, gold prices rose on Thursday despite dollars drop.
In just 10 minutes gold prices rose 3 per cent. It created a rhythm for the next 12 hours of trade. In fact many traders and investors were baffled and bewildered as they have seen such inexplicable soaring prices and trade surges over the past two weeks and this time too there were no explanations.

Spot gold rallied to a session high of $1,324.06 per ounce , up more than 3 percent on the day.

Late on Wednesday, the U.S. Congress approved an 11th-hour deal to end a partial government shutdown and pull the world's biggest economy back from the brink of a debt default that could have threatened financial calamity.

The US government shutdown ended and the nations borrowing authority was extended as US President Barack Obama signed in to the deal.

It funds the government until January 15 and raises the debt limit until February 7 so there is the possibility of another manufactured crisis in Washington early next year.

The resolution reached in Congress avoiding US government default left investors sufficiently uncertain that US dollar fell, bond yields eased and gold and other precious metals jumped

Despite the US signing a deal for the debt ceiling and putting a halt to the shutdown, we saw an opposite reaction in the market. 

Gold held onto 3 percent gains throughout the session as the dollar tumbled on Thursday following the U.S. congressional deal to restart the government and avoid a federal debt default.

Now what compelled this behavior????

Investors and traders are concerned that this extension of the debt ceiling had only delayed another shutdown by a few months. In fact, in February, once again they predict another shutdown in Congress between republicans and Democrats. if this happens then we should await a worsened economic scenario and even higher gold prices. 

Moreover, gold once again caught the investors attention as the dollar slumped on ideas that the extension of the debt ceiling and economic damage done to economy as a result of the government shutdown may delay the Fed from tapering in December

The US debt deal is being taken as a positive factor for gold as it will last just a few months. Investors say that it's just a temporary solution which has raised uncertainty once again over the Fed's decision to taper its bond buying.

The two-week shutdown and acrimonious debate over raising the U.S. debt ceiling have knocked investor and business confidence, denting growth prospects for the world's largest economy.

Markets will now refocus on economic news and the timeline for the US Federal Reserve's tapering of its monetary stimulus bond-buying programme. The Fed surprised financial markets in September by opting to delay the start of stimulus reduction.

The Fed is committed to purchasing $85 billion in new debt per month in an open-ended programme (QE). Accommodative measures from the US central bank are supportive of gold because extra liquidity tends to debase the dollar and create future inflationary risks.
Meanwhile in the Asian markets too there were a few factors that soared gold prices.

China's Dagong ratings agency downgraded America to an ‘A -' rating from ‘A’ after the US Congress only avoided defaulting on its debt by a couple short hours.

The decision taken by Dagong has caused precious metal prices to soar, all gaining by around 2-3 percent and breaking away from the remaining commodities sector,

In India, gold was being sold at a hit record premium of $100 an ounce.  A shortage f supplies to me the festive demand has resulted in this high premium.  Due to the additional premiums, quoted gold prices in India are 8 percent higher than the current spot price of $1,261 an ounce Banks, the primary dealers of bullion, are currently importing the yellow metal chiefly for exporters, as under the so-called 80/20 principle, jewellery exporters get priority for supplies over domestic manufacturers. The principle, part of a package of measures announced in July aimed at cutting India’s current account deficit by reducing gold imports, states that 20 percent of all gold imported into India must be re-exported.

Following government clarifications, banks have begun to process fresh orders, but the rule will still inhibit imports.

But nonetheless, the demand supply gap is widening and affecting gold prices.

The trade range for gold this week is expected to be $1290-$1350 (an ounce) in the international markets and Rs.29000- Rs.32000 (per 10gm) in the domestic markets.

The primary purpose of this blog (Prithviraj Kothari - MD, RSBL |  Bullion market blog) is to educate the masses of the current happenings in the Bullion world.
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"US Deal or No Deal"

Monday, 14 October 2013


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

Firstly, I apologize to my readers for not posting the Blog on Saturdays, that I usually do. We were busy with the SPARSH – Touch of Elegance store launch in Borivali, Mumbai. Secondly, what just happened to Gold on the day of my store launch? Gold sent the entire market into shockwaves.

It lost $30 in just two minutes. There was huge sell order that triggered the plunge. This single order was said to be the culprit as it took gold down to a three month low. Friday extended bullion's drop to a fourth consecutive day, its longest losing streak since late June. For the week, the metal was down 3.4 percent, its sixth weekly decline in seven weeks. 

Gold's sudden price tumble was a result of hedge funds and institutional investors flooding the gold futures market with sell orders. Spot gold was down 1.5 percent at $1,266.80, having earlier fallen as much as 1.8 percent to its lowest since July 10 at $1,262.14 an ounce.  An unusual large sale order in New York Futures and signs that a deal strike to avert potential US debt default prompted investors to sell and flee the market.

Gold is generally viewed as a safe haven asset in turmoil. But some confusion prevails in the market that has set gold moving on the other side.

However, later in the day markets attention was again moved towards the data that was out for release. Though gold was under selling pressures, the losses were almost halted by data that showed US weekly jobless claims touched a six month high in the previous week. Gold was quickly sold below 1300 again, but had to rally when US jobless claims came out with a 374’000 number and headline traders let it jump to the day’s high of 1312. The U.S. Bureau of Labor Statistics however said the number was wrong, due to a new computer system in California, as well as the government shutdown, so that gains were immediately given back.

Trading volume, which has been light this week, heated up briefly for about 10 minutes in U.S. morning trade. Prices remained range bound, with buyers on the sidelines due to a lack of U.S. data and anxiety over how the stand-off in Washington will play out, as a U.S. government shutdown continues. 

Gold remains vulnerable and possibly quite volatile in the short term but it is becoming increasingly attractive to long-term buyers with a significant rise in the price all the more likely over the next three-to-five years.

The uncertainty over the US government shut down is expected to create a negative impact on consumer spending, unemployment and economic activity. And if the impact will last longer then it's is less likely that the Federal Reserve would make any pending change in the US monetary policy. The Federal Reserve will not risk adoption of policies that might trigger a full-blown recession.

The current situation of the market place is that the US government will come to a budget agreement and raise the debt ceiling. But, in case that does not happen, the market has to be prepared for soaring gold prices as the yellow metals will once again dress up as a safe haven asset.

In the domestic markets, it's the demand numbers that's playing games. Despite seasonal demand, there is a weak trend in the domestic market. However, the demand is expected to pick up as rural income is expected to boost.

India gold purchases may go up this year on likely firm rural demand boosted by higher than expected monsoon showers, weak yellow metal prices. A report by the WGC expected demand to high in gold this quarter. Crashing international prices are also prompting buyers to enter the market at dips.

First thing that Indians stock is food and then Gold,. Gold, in India, is always considered above all other asset classes. Be it equities, real estate, funds etc. Demand for gold is expected to increase in the days to come.

Looking ahead, Indian festival and wedding-related demand, restocking by jewellery manufacturers worldwide in anticipation of Christmas and New Year retail buying, continuing strong demand from China, and a pick-up in central-bank acquisitions, should underpin the gold price and could contribute to a resumption of the long-term uptrend in the metal’s price.

Gold in the international and domestic markets is expected to trade in the range of $1230- $1320 an ounce and Rs.27,000- Rs. 31,000 per 10 gram 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.

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"Only one thing is certain for gold.....uncertainty"