Pages

RSBL Gold Silver Bars/Coins

Showing posts with label ecb. Show all posts
Showing posts with label ecb. Show all posts

Monday, 30 October 2017

Rally expected in gold in near future

Gold’s rally this year came to a halt in September. And the prices continued to weaken in October mainly due to higher US nominal and US real yields. The yellow metal fell from $1357 an ounce to $1260 on 6thOctober, thus signalling markets that the rally in gold prices has almost ended.

Post the decline, gold prices in October have stabilised. During the past week, gold prices declined by mid-week and then rose again on Thursdayamid a weaker dollar and equity market sell-off, while market participants turned their attention to the European Central Bank’s (ECB) monetary policy meeting.

The spot gold price was quoted at $1,280.20-1,280.50 per oz, up $1.45 from the previous session’s close.

The decline in equities helped turn around a sell-off in the gold market, as investors pushed back into safe-haven assets. Moreover a simultaneous fall in the US dollar also pushed the demand for gold.

Even though gold prices rose on Thursday and Friday, the week ended on a negative note for gold. Gold prices were down for the second consecutive week with the precious metal off by .75% to trade at 1270 ahead of the New York close on Friday. The losses come amid continued strength in the U.S. Dollar as it gained due to a sharp sell-off in the Euro after a dovish ECB President Mario Draghi suggested that interest rates would likely remain at present levels for "an extended period of time" after the QE program ends.



The broader bid in the U.S. dollar as markets factor in a more hawkish Fed chairperson and with the Fed on track to hike the Fed funds rate by 25 bp in December also weighed on commodities in the past week.

Gold prices were under pressure and the other precious metals are following its lead – again the firmer dollar and potential for more dollar strength, while the geopolitical scene seems calm, are weighing on prices. Needless to say, North Korea also remains a potentially bullish factor.

Gold edged higher on Friday, reversing earlier losses after the Catalonian parliament’s independence declaration from Spain led investors to seek safety from political upheaval.

Catalonia’s declaration was in defiance of the Madrid government, which was preparing to impose direct rule over the region.

Bullion is often used as a safe haven in times of geopolitical and economic uncertainty, while riskier assets such as equities are generally sold off.

Though gold managed to reach a session high of$1271 per ounce, it couldn’t sustain the strengthening US dollar and hence headed for its second weekly decline.

However, markets are still bullish for gold as the yellow metal is expected to rise to $1,350 an ounce between January and March 2018, and end the year with a more positive performance, as rates are expected to average at $1,450 an ounce.

The longer-term trend in gold prices is also positive, mainly because we markets are negative on the US dollar.

Coming to this week, a decline in gold prices can be expected as gold is expected to weaken over a strong UD dollar.

Currently, all eyes fall on the Fed with the FOMC rate decision slated for Wednesday. While no change to the benchmark rate is expected, traders will be looking for any changes to the accompanying statement- specifically as it pertains to the inflationary outlook. Keep in mind markets have largely priced in a December hike with Fed Fund Futures currently showing an 87.1% probability for an increase of 25bps. However with both 3Q GDP and the Core Personal Consumption Expenditure (PCE) coming in stronger-than-expected on Friday, the question now becomes the future pace of subsequent rate-hikes.

Tuesday, 19 September 2017

Wait, Watch and Then Work

In 2016, gold was seen climbing 6% from $1050 to $1150 and another 10% gain during the first half of this year, in July and again in early August, gold prices dropped down to $1210, before rallying back up both times to $1290 and $1350 per ounce respectively. This back and forth price action has some investors worried if this is a real bull market in gold or yet another flash in the pan for the coveted yellow metal?

Reasons being more than one, Investors arereturning to gold again to prudently diversify their stock-heavy portfolios.  That’s very bullish for gold, as investment capital inflows can persist for months or even years.  This shift is most evident in the yellow metal.



There are a couple of issues pushing and pulling at the market. The reaction to the missile launch last week has been a bit negated by that better-than-expected (US) inflation number.

Spot gold slipped on Friday, shrugging off North Korea's latest missile launch over Japan, with strong US inflation data raising the spectre of another interest rate hike.

Let’s have a look as to how each factor was responsiblefor this wave like movement in gold prices.

North Korea - North Korea fired a missile on Friday that flew over Japan's northern island of Hokkaido far out into the Pacific Ocean, South Korean and Japanese officials said, further ratcheting up tensions after Pyongyang's recent test of a powerful nuclear bomb.

US Data - Geopolitical risks can boost demand for safe-haven assets such as gold and the Japanese yen. The yen slipped against the dollar on Friday, after earlier having risen on the news, with the greenback supported by strong US consumer inflation data.

Gold pared losses after data on Friday showed U.S. retail sales unexpectedly fell in August and industrial output dropped for the first time since January due to the impact of Hurricane Harvey.
Friday's numbers were in contrast to strong U.S. inflation data on Thursday which increased prospects of an interest rate hike in December.The Fed's next monetary policy meeting begins on Sept. 19 and now the marketis increasingly focusing on the Federal Reserve and its probability of another rate hike this year.

The Fed has a 2 per cent inflation target, and a series of subdued inflation readings have dampened expectations for further rate rises in the near term. Firming inflation could support the case for another rate hike. Interest rates tend to boost the dollar and push bond yields up, putting pressure on gold.

ECB - Gold fell on Friday after a European Central Bank official called for scaling back the bank's stimulus programme; although losses were capped when weaker than expected U.S. economic data raised questions about further rate hikes.

ECB board member Sabine Lautenschlaeger made the most explicit call so far from an ECB policymaker for paring the bank's 2.3 trillion euros money-printing programme.

Data showing that euro zone wages grew at their fastest rate in two years in the second quarter bolstered the case for reining in ECB stimulus.

This was rather a bad news for gold because this continues the trend of the market pricing in the normalization of monetary policy.

But he said there had already been plenty of headlines about the ECB planning an exit from its bond buying and the U.S. Federal Reserve reducing its balance sheet after its big quantitative easing programme.

Those "normalisation" actions by central banks tend to drive rates higher, push bond yields up and put pressure on gold, a non-yielding asset.

Summing it up, though the previous week saw gold moving like a see saw; the focus now shifts to the important FOMC meet due on 19th September. Wait, Watch and then Work would be the only trading tip for the time being.

Tuesday, 12 September 2017

Strong Rally in Gold Prices RSBL

We have seen gold nearing a 1 year high over the past few months. But what has supported this rally for the yellow metal? 

Lately, uncertainty in many forms has played a key role. This past week's nuclear test in North Korea shook investors, sending them fleeing to safe-haven investments such as gold. In addition, uncertainties over Congress's ability to pass corporate tax reforms, which are being counted on to boost U.S. GDP growth, have some pundits favouring gold relative to stock-based equities.
Last Friday, the spot gold price was trading at $1,352.50/1,352.90 per oz, up $5.2 from the previous trading day’s close. 

Gold prices were well-bid on Friday September 8 as weaker-than-expected US economic data and the ECB’s decision to leave interest rates unchanged, as well as continued geopolitical risks, maintained pressure on the dollar.




Let’s take c closer look at all the influences- 

US Dollar-Uncertainty and lower-than-expected inflation rates have been doing a number on the U.S. dollar. In recent weeks, the dollar hit multiyear lows against the euro and at least one-year lows against a handful of other major currencies. 

In recent months the dollar has suffered from multiple issues forcing it lower against other major currencies, including political failures, multiple climate-related disasters, geopolitical tensions and weak inflation in the US.

The latter, in particular, has made it more difficult for the Federal Reserve’s Federal Open Market Committee (FOMC) to justify hiking interest rates

The dollar index on Friday morning was down 0.08 to 91.45. Overnight US jobless claims surged to a two-year high because of Hurricane Harvey, which raised doubts over further US interest rate hikes in December.

The dollar and gold usually move in opposite directions, meaning the dollar's weakness has been a green light for gold investors.

ECB Meet- ECB policymakers indicated at their meeting overnight that the European central bank was not intending to weaken the common European currency, which is expected to support euro performance in the short-term. The ECB maintained rates and upgraded its growth forecast this year by 0.3ppt to 2.2%, but maintained its 2018-19 forecasts.

Hurricane- Meanwhile gold prices jumped today morning as an earthquake off the coast of Mexico added to the hurricane damage in the Caribbean and US east coast in driving demand for the traditional safe haven.

U.S Data- The tally was the highest level for initial claims since April 18, 2015, when it was also 298,000, the government said. 

Consensus expectations compiled by various news organizations called for initial claims to be around 241,000 to 242,000. The government left the prior week’s tally at the previously reported 236,000.
Gold prices rose after a Labor Department report Thursday showing that initial weekly U.S. jobless claims surged by 62,000 to a seasonally adjusted 298,000, with the government citing the impact of Hurricane Harvey.

Geopolitical tensions- Geopolitical risks also remain at front of mind, with the USA pushing hard for additional sanctions against North Korea. This kept safe-haven buying relatively strong 

Persistent North Korean tensions and general US dollar weakness propelled gold $15 higher to new 2017 highs overnight, touching $1,249.98 and closing just below at $1,249.50. 

Geopolitical events have boosted precious metals prices. Gold prices continue to push higher, underpinned by geopolitical concerns over North Korea. For any further escalation in the on-going tensions, gold is likely to remain in demand. 

FOMC Meet and Interest Rate Hike-A combination of stubbornly low core inflation and rising doubts about the Trump administration’s ability to pass new legislation has been underpinning the situation. 

Specifically, the failure of high asset prices and strong labour market growth to pass through into underlying inflation is bringing into question how much further the FOMC will be able to lift rates in the near term. While the healthcare bill fiasco and lack of detail around both tax reform and infrastructure spending have underlined the difficulty of turning rhetoric into reality when it comes to shifting growth onto a higher structural path. In consequence, markets have been remarkably sanguine about the FOMC’s anticipated announcement of balance sheet reduction at their September 20th meeting and are now only pricing 25% chance of another hike by year-end.

Prices are closing in on last year’s highs so some nervous profit-taking may emerge, leading to choppy trading, but the combination of North Korea, a weak dollar and low treasury yields are all supportive. Silver and platinum may well follow gold, but palladium prices that are already elevated, may struggle more.

Although this combination of factors clearly presents a constructive cyclical backdrop for gold prices, the extent of the recent rally has surpassed what can be explained by just US rates and the weak dollar. 

Saturday, 9 September 2017

Gold steady ahead of Sept. FOMC Meet

After rising for 3 days, gold prices weakened globally and on the domestic front too on weak global cues and easing demand by local jewellers.

Trump reached a surprise deal with Democrats on Wednesday to raise the short-term US debt ceiling, reducing concerns over a potential government shutdown and denting safe-haven demand.


President Donald Trump on Wednesday warned that the US would no longer tolerate North Korea's actions but said the use of military force against Pyongyang will not be his "first choice".

Gold stabilised early on Thursday, sustained by a weaker dollar and enduring concerns over North Korea, as markets awaited the outcome of a European Central Bank (ECB) policy meeting.

Spot gold was little changed at $1,334.06 per ounce during Thursdays trading hours, after easing 0.3 per cent in the previous session.

The dollar edged down against the yen on Wednesday, pushed back toward a recent 4-1/2-month low by the simmering tensions over North Korea and by comments from a Federal Reserve official about subdued US inflation.

Following suit, the dollar remained submissive on Thursday and the euro stood firm ahead of the ECB meeting where President Mario Draghi is expected to start laying the groundwork to withdraw monetary stimulus.

Currently, the escalating geopolitical tensions are bringing a rally in gold prices and the chances of the unrest rising further are high. If North Korea does another missile test, it will trigger risk-off trade thus proving to be of further help to gold.

The market is likely to continue focusing on geopolitical tensions, but it will start to shift focus to the Federal Reserve meeting in September, looking for details on reducing the balance sheet.

The two-day Federal Open Market Committee meeting (FOMC) is due to begin on Sept. 19 and the US central bank is widely expected to leave rates unchanged.

This could create some plunging pressure on gold starting next week and a rebound in the dollar for a short term.

Monday, 28 August 2017

Markets seem difficult to trade

After weeks of relative stagnation, gold traders were suddenly awoken to a rise in trade volume and price volatility. In a span of one minute, gold futures contracts equaling more than 2 million ounces traded -- about 20 minutes before Federal Reserve Chair Janet Yellen was to address a gathering of policy makers in Jackson Hole, Wyoming.

The occurrence shook the market after a measure of 60-day volatility on the metal touched the lowest since 2005.

 Gold had been lying stable amid political disharmony in Washington, worries about rising U.S. interest rates and escalating geopolitical tensions between the U.S. and North Korea.

Investors were not expecting Yellen to make a policy statement anyway, but some market participants were hoping for some signal on the Fed's planned balance sheet reduction, if not on the outlook for U.S. interest rate hikes.


Yellen’s speech, which lacked clear rate cues, did little to calm the price swings and damped expectations of a rate hike this year.

Federal Reserve Bank of Dallas President Robert Kaplan helped fuel the sharp move before Yellen’s speech Friday by saying the central bank can afford to be patient on raising interest rates even while noting it should shrink the balance sheet soon.

These comments were dovish and pushed gold prices higher. But then when Yellen didn’t mention monetary policy, things started to stabilize again.

The dollar fell to a three-week low against the euro and a one-week trough versus the yen on Friday after Federal Reserve Chair Janet Yellen made no reference to U.S. monetary policy in her speech at the annual central bank research conference in Jackson Hole, Wyoming.

Instead, Yellen focused on U.S. regulations, saying those put in place after the 2007-2009 crises had strengthened the financial system without impeding economic growth, and any future changes should remain modest.

Dollar had weakened because Yellen "didn't say anything positive for the U.S."

The dollar has been trading higher for most of the week after sharp losses in recent months.

The dollar fell to a one-week low of 109.23 yen after Yellen's speech. It was last down 0.2 percent at 109.33.

The euro, meanwhile, hit a three-week high against the dollar and was last up 0.6 percent at $1.1862.
Focus now shifts to the coming week wherein a few interesting events are lined up.
The yellow metal may remain range-bound in the $1,290s ahead of the U.S. Labor Day holiday on September 4th.

Labor Day can mark a variation point in various economic parameters, including the gold price.  There are also U.S. Fed and ECB policy meetings that will be held in the second half of September and the U.S. FOMC one in particular will be viewed with particular interest vis-à-vis gold given observers will be looking for clues on the likely date for the next interest rate rise decision and/or Fed balance sheet reductions.  The U.S. economy is not showing positive developments as well as forecast by the Fed so there are some who believe any rate increase will now likely be put off until next year.

The period that lies between the Labour Day and The FOMC meeting will be crucial for gold as the markets reactions all depend on this interim period.

Market reaction after Labor Day, and before the FOMC meeting will probably see gold react positively or negatively to economic data (fact or supposition)  coming out in the interim, which may hold gold back from bursting through $1,300, which it would likely do if the FOMC looks like delaying any interest rate rise decision beyond the calendar year end.  An indication that the Fed will indeed continue its tightening programme in December may pull down the gold price , but perhaps not affect its on-going progress in the medium term.

Similarly the ECB policy meeting in Frankfurt, which comes just after the FOMC meeting, will also be followed with strong interest, but may not see any further tightening while the Euro remains at current levels against the dollar.

We still see gold rising through $1,300 and perhaps hitting $1,350 by the year-end, but sometimes Q4 can prove to be a weak period for precious metals, so we are not wholly confident on this prediction.  Currently markets seem difficult to trade!

Tuesday, 14 March 2017

The sentiments for Gold are bullish

Gold prices have fallen 5.3% from the end of February high and they have almost given back 50% of the December to February gains

Gold prices slipped towards week low on Thursday as investors awaited the employment report due on Friday, a factor that would unofficially strengthen the interest rate hike in the FOMC meet next week.


Gold’s latest pull down followed the release of better-than-expected US private jobs data midweek, boosting the dollar ahead of the release of official monthly payrolls figures on Friday.


  • Private employment, which excludes government agencies, rose by 227,000 after a 221,000 increase the prior month. It was the biggest gain since July. Construction jobs, which can fluctuate depending on the weather, rose by 58,000, the strongest in almost a decade, and followed a 40,000 increase in January. Manufacturing payrolls gained 28,000, matching the most since August 2013. Meanwhile, retail positions fell by 26,000, the most in four years.
  • The ECB held its benchmark refinancing rate at 0% and left the pace of its bond purchases unchanged on March 9th, as widely expected. Both the deposit rate and the lending rate were also left steady at 0.4% and 0.25%, respectively.
  • The number of Americans filing for unemployment benefits went up by 20000 to 243000 in the week ended March 4th 2017, slightly above expectations of 235000.
  • 2008 Nonfarm business sector labor productivity in the United States increased at a seasonally adjusted annual rate of 1.3 percent during the fourth quarter of 2016, following a downwardly revised 3.3 percent rise in the previous period and below market expectations of a 1.5 percent gain.


While unseasonably warm weather may have boosted the payrolls count, the data represent President Donald Trump’s first full month in office and overlap with a surge in economic buoyancy following his election victory. The figures also corroborate recent comments by Federal Reserve officials that flagged a likely interest-rate increase this month.

Bullion’s being pulled back down toward $1,200 an ounce in the worst losing run since October as positive US economic data underpinned expectations that interest rates could probably be raised several times this year, starting with a hike next week.

After raising rates just a single time in 2015 and also in 2016, the pace may quicken this year. The so-called dot plot from Fed policy makers shows an expectation for three increases this year, and last Friday, Yellen dropped hints the bank might end up having to hike them more than planned in 2017.

After Wednesday’s upbeat private payrolls data, markets were pointing towards more than 90 % chances of rate hike in March meeting; gold prices are likely to face the weakness amidst the strength in the dollar. Separately, the weaker CPI released from China is also likely to put pressure on gold, given the fact that gold is considered as a hedge against inflation.

Gold prices slipped on Friday, building on a loss for the week as better-than-expected U.S. employment data backs the likelihood that the Federal Reserve will decide to boost interest rates at its meeting next week.

Higher interest rates lift the appeal of holding dollars. That also means that a stronger dollar cuts the worth of holding non-yielding gold that’s priced in this denomination.

We see this sell-off as tied into the increased chance of a US rate rise next week. Looking further out, sentiments for the yellow metal are bullish.


Monday, 14 March 2016

Renewed confidence in Gold and Silver: RSBL


                                                               By Mr. Prithviraj Kothari, MD, RSBL


 
Gold prices rallied this week but gave up all gains established post ECB. Still the closing was in a positive trend.

The precious metals remain upbeat with average gains of 0.4 percent with gold prices last at $1,275.10, having set a fresh high at 1,282.90, the highest since February last year.

Gold Price rise

The Yellow metal hit a 13-month high in the wake of the European Central Bank (ECB) decision to lower deposit rates and sink another 80 billion euros per month into the economic region. President Mario Draghi said the new efforts will run until March 2017, but stated that he did not anticipate any further rate cuts.

In data, US weekly unemployment claims between February 27 and March 5 came in at 259,000, under the forecast of 272,000 and below the psychological 300,000 mark. This strong US employment report had driven optimism that the US economy and also the world economy may not be that weak as feared following which expectations on the demand viewpoint have been adjusted aloft.

The focus now shifts to Tuesday’s Federal Open Market Committee (FOMC) meeting 15- 16 March for fresh stance on the interest rates in the US, which is world’s largest economy. The meeting will be followed by a summary of economic projections from individual Fed members, as well as a press conference by Chair Janet Yellen. The policy-board has faced severe instability, but recent employment figures show the American economy is still recovering at a healthy pace.

On the domestic front, gold prices are expected to rise further followed by a weakening dollar. The other precious metals also seem to be facing resistance at these levels, although they also do seem to be attracting more investor interest now, which suggests dips will be supported. 

Key economic data watch out for in the coming week:
·         Tuesday - Retail sales, producer prices and the New York Fed Empire State manufacturing survey
·         Wednesday - consumer price index, housing starts and industrial production
·         Thursday - Jobless claims and the Philadelphia Fed manufacturing survey
There are several central banks meeting this week i.e. Bank of Japan, Bank of England and Swiss National bank whose rate related decisions could bring up some volatility in the markets.

Simultaneously, traders will be keeping an eye on is the conclusion of National People’s Congress in China and will be watching for any statements about fiscal stimulus or monetary easing.

My Sentiment for gold prices is positive and if it crosses $1280 an ounce then gold is expected to reach the next technical resistance levels of $1310 an ounce. As it failed to cross $1280 convincingly, I do feel that there could be a short term pull back in prices but Gold’s price of $1300 won’t be a surprise. Silver too has shown a good support around $15.50. In rupee terms, I feel Gold prices would be in the range of INR 28,000 to INR 31,000 while Silver would be in the range of INR 36,000 to INR 41,500.

Silver Price rise



Thank You!


You may follow me on:

Facebook: https://www.facebook.com/prithviraj.kothari
Twitter: https://twitter.com/prithvirajrsbl
Website: http://www.rsbl.co.in/
YouTube: https://www.youtube.com/user/PrithvirajKothari
Google+ URL: http://www.google.com/+PrithvirajKothari



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 -
"Post-Budget 2016: Views of RSBL - Mr. Prithviraj Kothari"
http://riddisiddhibullionsltd.blogspot.in/2016/03/post-budget-2016-views-of-rsbl-mr.html

Photo courtesy: Google search

Sunday, 7 December 2014

APPETITE FOR GOLD DECLINED

 -By Mr. Prithviraj Kothari, MD, RSBL



In the past few weeks we have seen volatility in gold but then it has settled back on the lower trading range. With fall in gold holdings in the SDPR gold trust we have seen investors interest weakening in the yellow metal. Apart from the SDPR, the dollar has also played a crucial role in influencing gold prices and it will continue to do so in the coming months.

Although, US economy is on a mend, the actions taken by central banks (Euro-zone and Japan) to prop up its economies will likely result in to weakening of their respective currencies and strength in the dollar in turn prices heading lower.

Moreover, the decision coming in from the Swiss referendum not to boost its gold reserves, at the same time falling oil prices and diminishing investment actions are also signifying that the market has temporarily disowned gold and has been replaced by more interest generating assets in its class.

Earlier in the week economists admitted there was some downside risk to the employment forecast following Wednesday’s private sector payrolls data, compiled by payrolls processor ADP. The report was weaker than expected as corporations and businesses created 208,000 jobs last month. The unemployment rate for November was 5.8%, unchanged from October’s reading of 5.8%; economists were expecting an unchanged reading. The report also said that the labor force participation rate was unchanged at 62.8%. Last month we saw a very strong labor market as the reports released by the US labor department states a significantly higher-than-expected nonfarm payrolls report for November.

On Friday, the Bureau of Labor Statistics said 321,000 jobs were created in November, up from October’s revised level of 243000; October’s initial report said 214,000 jobs were created. September's employment report was also revised higher to 271,000 from the original report of 256,000 jobs. This was the biggest jump in employment since January 2012. The report noted that the 12 month average for employment was 224,000.

There was a huge growth witnessed in the jobs in November which was led by gains in professional and business services, retail trade, health care, and manufacturing.

Even though the jobs report was extremely impressive, gold did not extend sharp losses after its release. The previous two jobs reports saw upward revisions in employment gains, and wages also rose. The job gains in 2014 are the fastest rate since 1999

Gold prices dropped under $1,200 following a blowout November nonfarm payrolls report. It instantly fell by 10$ as there were further expectations that the Fed will start talking about the Fed funds going higher than expected. Such news is not motivating for the commodities markets and it further expected that gold prices will weaken.

Simultaneously we saw the US dollar rising on this news. The dollar index rose above 89 for the first time since March 2009. The dollar advanced to the highest since 2009 against a basket of currencies, cutting the appeal of bullion as an alternative asset. Dollar is trading currently at $ 1.228 against euro. Euro is slacking after the ECB left the interest rates unchanged.

The strong labor report further signifies the fact the Federal Reserve may soon hike rates and this could happen as early as next spring.

The only issue that could be of concern would be the wage growth reports as it was not seen to be that strong and could keep the Federal Reserve apart from pulling the trigger on interest rate hikes.

Before hiking the rates the Fed would want to see some further improvement in the wage growth which could practically happen if the current momentum in hiring is maintained and the underemployment rate continues to fall.

The labor markets have been improving rapidly over the past few months. The issue of concern now is the Fed’s reaction to its mid-December meeting. But if we see the global scenario gold prices in the international markets is expected to trade lower as a hangover of the recent run of losses.

In the near past, we have the dollar being the key influential factor for the weakened in the yellow metal and it is expected to continue to do so in the near future to.



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 - "Too Many Economies Putting Pressure On Gold"
http://riddisiddhibullionsltd.blogspot.in/2014/11/too-many-economies-putting-pressure-on.html

Sunday, 8 June 2014

GLOBAL MANTRA- "JUST WAIT AND WATCH!"

                                                     - by Mr. Prithviraj Kothari, MD, RSBL





Once again, gold was surrounded by a cloud of doubt.....doubt of gold being a safe haven asset...doubt of gold being the most dependable asset in times of uncertainty.

While Thursday showed signs of gold on the path of recovery, the US jobs data released on Friday once again proved fatal for gold. Bullion climbed 0.8 percent on Thursday, reaching the highest since May 30, after the euro strengthened against the dollar as the market discarded the European Central Bank’s unparalleled effort to weaken the single currency and strengthen growth. On Thursday, The European Central Bank announced a new and aggressive monetary stimulus package. This once again raises a question over the global economic recovery. This package along with dovish corresponding remarks from ECB president Mario Draghi  considered stock market and European bond market bullish. 

This move of the ECB has reinforced the notions of some in the market place that the U.S. Federal Reserve may be forced to back off its plan of “tapering” its quantitative easing. 

This has created a contradictory environment in the economic world where the European Union is stimulating its monetary policy while at the same time the Fed is tapering its monetary easing.

It was this tapering of the FED that gold saw its worst performance in 2013. It was in 2013 that we saw the yellow metal dropping almost 28 percent over expectations that the Federal Reserve will taper its monetary stimulus programme as the US economy strengthened. Since January, 2014, The Fed has made four tapers as we saw US moving gradually towards the path of recovery

This week too gold dropped on positive jobs data released on Friday. Gold prices fell on Friday as the dollar index swung back into positive territory, after a closely watched U.S. employment report came in almost exactly in line with expectations, showing a solid pace of hiring in May. Friday morning’s U.S. employment report for May showed a slightly higher than expected rise of 217,000 in non-farm payrolls. The key in the report was forecast to rise by 210,000. Nonfarm payrolls increased last month, the Labor Department said on Friday, against expectations for a 218,000 rise, while data for March and April was revised to show 6,000 fewer jobs created than previously reported.

The bearish trend in the international market is further expected to bring down gold prices in the near term. This sentiment further strengthened as premium on gold in the domestic markets dropped. 

At the same time, gold consumers in India are waiting to exhale. Consumers in India are following the "wait and watch" policy as they expect prices to decline below the crucial Rs.25,000 level in the near future as the market expect customs duty to decline.

Post election, gold premiums have dropped drastically. premiums had slid from 10% to 1% and 2%, soon after the government allowed premier trading houses to import gold and increased the availability of the metal in the market. and markets have a positive feel towards a lot of sectors including precious metals. Investors and traders now await a new gold policy to be unveiled by the government.

Many have even postponed their purchases as they feel that prices will decline further.
Jewellers expect prices to slide further in the next 4-6 days, given the price slump in the international market.

In the international markets people have shifted focus from gold to equities. Following suit, In India too, stocks are stealing the lime light as gold has been sidelined. Moreover, customers expect a further fall in import duties after which gold prices are anticipated to fall further. Demand in the domestic market is also expected to remain slack for the next two months, as there is no festive season.

Many traders who had resorted to hoarding gold due to supply concerns would refrain from doing so now, as import norms for exporters have been relaxed to a certain extent, said jewellers. Moreover, June is considered a slow month as far as demand is concerned.

So as of now gold is just hanging around. While some people have shifted focus to equities and physical demand for gold isn't strong, the announcements of the ECB meeting has found some cover for gold.

Most people will just wait for the market to make a decisive move before entering at this dip.

While the only mantra now is wait and watch I expect gold to be in the range of $1238- $1273 and Rs.26,200- Rs.27,500 in the international and domestic markets respectively.

On the other hand silver is expected to move in the range of $18.15- $20.15 and Rs.39,500- Rs.41,000 in the international and domestic markets respectively.

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 Dreadful Week For Gold"
http://www.riddisiddhibullionsltd.blogspot.in/2014/06/a-dreadful-week-for-gold.html