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Showing posts with label economic indicators. Show all posts
Showing posts with label economic indicators. Show all posts

Sunday 9 August 2015

GOLD TO BE PRESSURED DOWNWARDS: RSBL

 By Mr. Prithviraj Kothari, MD, RSBL




The bull market for gold is entering its seventh year. For the past seven months the market has traded roughly sideways.  Collapsing energy prices and a rising dollar have held back earnings and revenue growth. 
In the past, the demand for gold from China had been a motivating factor behind the rising prices for gold. But now, questions regarding the pace of global economic growth have moved to the forefront recently by price declines in the Chinese stock market, oil, commodities and high-yield debt in the past three months.
 
Such a slow pace of economic growth continues to create a deteriorating investment scene. Commodities and oil are key drivers of global economic growth, and falling prices do not usually portend rising demand. 
Gold has been trading in successively smaller weekly ranges for the past 2 weeks. This week we closed lower at 1095 with a very small range, and it appears that the bottom of the bearish trend.
 
Spot gold, which hit a session low of $1,082.76 an ounce immediately after the U.S. jobs report, managed to rebound 0.5 percent to $1,095.26 . It had fallen to $1,077 on July 24; it’s weakest since February 2010.

Though we saw some buying momentum in gold as the week ended, some market players state that since prices aren’t able to break the $1100 mark, gold does not bode well for a sustained rally.
Surprisingly, $1,100 appears to be the barrier that we just can’t seem to break. Although there are expectations that the market might trade in a tight range next week, gold remains an unwanted asset as the expectations remain that the Federal Reserve will raise interest rates in September.

After rising on Friday, following the U.S. Department of Labor’s employment report for July, the U.S. dollar weakened as afternoon trading wore on. It was a neutral report- not too close and not too far from expectations. Therefore, markets are finding it difficult to analyze and find a meaning in it. 

Economists have noted that July’s nonfarm payrolls report helped to rejuvenate those expectations. Although job gains of 215,000 were below expectations, it stills a “solid” report.
Consensus forecasts ahead of the report were expecting that the U.S. economy created 223,000 jobs. The unemployment rate remained unchanged at 5.3% last month, in line with economist expectations.

The consensus was for 223,000 jobs and July came in at 215,000. However, upward revisions to the previous months’ employment data plus a gain in average hourly earnings and hours worked were both viewed positively by market participants, and as a stronger signal the Fed could raise rates in September. 

The U.S. labor market lost momentum in July, coming in under expectations for the second consecutive month, according to the latest employment data from the Labor Department; however, the numbers still showed jobs gains of more than 200,000.

Friday, the Bureau of Labor Statistics said 215,000 jobs were created in July, down from June's revised number of 232,000; June’s initial report pegged the growth at 223,000 jobs. May's employment data was also revised higher to 260,000 from the previous report of 254,000.
Although the data was slightly weaker than expected, gold prices sold off in initial reaction to the news, dropping almost $10 and falling to a session low of $1,081.40 an ounce. 

Other highlights of the report were-


  • The participation rate was also unchanged at 62.6% in July.
  • Wage growth continues to expand at a steady pace, increasing 0.2% in July, compared with a 0.2% rise in June.
  • The report noted that average hourly earnings rose five cents last month to $24.99. On an annual basis wages have increased by 2.1%.
  •  Employees also saw an increase in the work week; the report said that the average workweek rose by 0.1 hour to 34.6 hours.
Although it appears that some of the immediate selling pressure has been alleviated, there is still strong negative sentiment in the marketplace. Retail investors continue to expect to see lower prices in the near-term and market professionals have once again turned bearish on gold.

The first data point that could have potential to move the gold price next week comes Thursday with the release of U.S. advance retail sales for July. The market ends the week with some inflation data with the release of the U.S. Producer Price Index for July.
Despite the negative sentiment, there is still market professional who see some hope for the yellow metal as technical momentum indicators continue to highlight an oversold marketplace.

However, gold is still fundamentally in the doldrums from the bullish point of view. Long term, gold will be pressured downward. 

Markets don’t expect to see another sharp selloff until Aug. 19, when the Federal Reserve will release the minutes of its July meeting. Markets will then expect a clearer picture of an interest rate hike in September.

Till then gold is expected to trade sideways until some solid crucial news is reported.
Markets could be stuck in a range next week in light volume as markets will be deeper into the summer holiday season.


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 -
"Rate Hike Creating Pressure On Gold"
http://riddisiddhibullionsltd.blogspot.in/2015/08/rate-hike-creating-pressure-on-goldrsbl.html



Saturday 1 August 2015

RATE HIKE CREATING PRESSURE ON GOLD:RSBL

By Mr. Prithviraj Kothari, MD, RSBL




Firstly, I would like to express my sincere condolences on the death of our former President Mr. A P J Abdul Kamal. As we all know him better as the missile man of India, his loss means a lot for our country.

Moving on to his week’s bullion market. Well there was lots of hustle bustle in the market as there was no clue over the prevailing volatility in gold.

Gold was probably in the worst macro position it could be in: you have low inflation, high accommodation across the globe, US investment growth and the possibility of further increases in the US dollar.

Currently it seems like gold has been divorced by the market.

Bullion was set to end July with its biggest monthly decline in more than two years after a deep rout last week shook investor confidence further and drove prices to a 5-1/2 year low of $1,077 on July 24. The metal has lost 7.4 percent so far for the month, its steepest decline since June 2013.

Bullion is set for a 7.4 per cent plunge this month, the most since June 2013, after tumbling to the lowest level since 2010 last week. The metal fell as much as 1.1 per cent to $1,084.51 an ounce on Thursday, and was at $1,085.51 at 2:24 p.m. in Singapore, according to Bloomberg generic pricing.

The main culprit for this week’s volatility was the US economic data which in turn influenced the Fed's decision of an increase in interest rates which in turn fluctuated the dollar prices.

Gold and dollar typically move in opposite directions, which means if the dollar goes up, gold futures will fall as gold, measured by the dollar, becomes more expensive for investors.

Gold was headed for its largest monthly decline in two years as the Fed moved closer to boosting US interest rates for the first time since 2006.
While there were no clear signals from the Fed as to when exactly would the rate hike come in, they did describe job gains as solid amid an improving economy, according to a statement Wednesday.

Post the statement released by the Federal Reserve- now markets expect the hike to come in soon – probably this September.
Fed policy makers expressed satisfaction with progress toward full employment and used one word -- “some” -- to describe the additional gains it wants before raising rates.

Increasing rates reduce the allure of gold as the metal doesn’t pay interest or give returns like other assets such as equities and bonds. Investors have cut their holdings in exchange-traded funds backed with bullion by 3.6 per cent this month, the most since December 2013.

Report released by the US department of labor showed the employment cost index rising 0.2 percent, which is the smallest increase in 33 years.
Gold is an asset that pays no interest or coupon and the rate hike is certainly putting pressure on prices.

Gold slipped on Friday and was on course for a sixth straight weekly fall, its longest retreat in 16 years, after upbeat U.S. economic data encouraged bets on the Federal Reserve raising interest rates in September.

Data on Thursday showed the U.S. economy grew 2.3 percent in the second quarter, while first-quarter gross domestic product was revised to show growth of 0.6 percent instead of a contraction.

That reinforced expectations the Federal Reserve is on track to raise interest rates, possibly at its next meeting in September. Higher interest rates would increase the opportunity cost of holding non-yielding bullion.

The data followed the Fed’s policy meeting earlier this week at which policymakers concluded that the world’s largest economy is “expanding moderately”.

But once again, apart from the employment data there were other key economic numbers that came in and influenced gold prices in the opposite direction. Gold prices were trading in positive territory on Friday after mixed US data weighed on the dollar.
Prices fluctuated heavily throughout the week as a combination of a Federal Open Market Committee (FOMC) meeting and US GDP figures drew investors from the sidelines.


ETF- outflows of gold from ETFs are capping any real recovery in the metal’s price. Holdings in funds tracked by Fast Markets have decreased for 14 consecutive sessions and are now at their lowest since February 2009 at 1,537 tonnes.

PMI- Chicago PMI in July was 54.7, exceeding the forecast of 50.7 and the first expansion reading since April of this year.

Consumer Sentiment- University of Michigan consumer sentiment in July was 93.1, below predictions of 94.2

ECI- Thought the weekly unemployment claims were much lower than expectations, a simultaneous wage growth was nowhere to be seen. Employment Cost Index showed a 0.2 percent increase, below the 0.6 forecast and yet another example of persistently low wages.

Eurozone - German retail sales fell short at -2.3 percent as did French consumer spending at 0.4 percent and the Italian unemployment rate at 12.7 percent. Eurozone core consumer inflation however at one percent was better than the forecasted 0.8 percent while the flash estimate at 0.2 percent was as expected.

Traders said sentiment bolstered as the precious metals rose in global markets after a report showed wages and salaries in the US rose in the second quarter at the slowest pace on record, weakening the case for the Federal Reserve to raise interest rates.
The next important data release is U.S. non-farm payroll figures, due on Aug. 7 which will once again play a key role in influencing gold prices.





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 -
"Disappointing Week For Gold:RSBL"
 http://riddisiddhibullionsltd.blogspot.in/2015/07/disappointing-week-for-gold-rsbl.html

Sunday 10 May 2015

RSBL: GOLD BELOW PEOPLE'S RADAR


                                                                                   -By Mr. Prithviraj Kothari, MD, RSBL





Currently, the gold markets seems to be more like a see saw as it remains directionless amid mixed economic data.

Gold got a little lift from its downward trend.  Prices gained 1% for the week as a whole, after revisions to US payrolls data, from March and February, sparked speculation that the Fed could refrain from hiking rates in the immediate future.

The members of the Fed’s policy board are locked in what has become an increasingly public debate on when will be the right time to raise interest rates, which have been near zero since December 2008.

Gold remained quite stable and was fairly unchanged on Friday afternoon trading sessions after a lukewarm US jobs report failed to answer many of the questions surrounding the US economy.
The spot gold price of $1,185.00/1,185.80 per ounce was up $1.40 on the previous session’s close. It peaked at $1,193.80 shortly after the release of the US jobs report.

Let’s have a look at the data released during the week-

Employment Data- The US economy created 223,000 jobs in April, which was essentially in line with the 228,000 forecast, while the unemployment rate dropped to 5.4 percent from 5.5 percent in March. Average hourly earnings increased 0.1 percent, slightly below the 0.2 percent expected.
But payroll employment for February was revised from 264,000 to 266,000, and the change for March was revised from 126,000 to 85,000. With these revisions, employment gains in February and March combined were 39,000 lower than previously reported.
The report said that the unemployment rate remained unchanged at 5.4%. The participation rate was also little changed at 62.8% last month.

Since April 2014, the participation rate has remained within a narrow range of 62.7 percent to 62.9 percent. Wage growth saw a smaller than expected rise last month, increasing by three cents or 0.1% to $24.87.  Over the past 12 months, average hourly earnings have increased by 2.2 percent.
The average workweek remained unchanged at 34.5 hours. The weak wage growth was also “disappointing” and could keep the Federal Reserve postpone an eventual rate hike. A trend of firmer wage growth needs to be seen before “before Fed officials are ‘reasonably confident’ that inflation is on the path back to their target.



China- the Chinese trade surplus at $34.1 billion in March was up from $3.1 billion in February but below the expected $34.5 billion. As well, exports and imports both fell further than expected.

German- German industrial production disappointed at -0.5 percent as did the German trade balance at 19.3 billion euros. But Italian industrial production at 0.4 percent was better than expected.
ADP- In another precursor to today’s data, the ADP figure on Wednesday at 169,000 was below the forecast 199,000. A higher number today, however, could underpin a surge in the dollar and ultimately dampen any near-term prospects for gold – particularly while many investors are building the case for a delay to any interest-rate rises.


Dollar- The complex shrugged off a stronger dollar, which at 1.1200 against the euro this morning was building on gains of 0.66 percent on Thursday after US weekly jobless claims at 265,000 were better than the forecast 277,000.

Most financial markets were looking a little stretched, which could create volatility, ultimately supporting gold prices.
If the Federal Reserve is not that confident of a positive economic growth then it is quote expected that the first interest rate hike would be further postponed, which would further benefit gold.

Any negative data coming from US could drive up gold prices above $1200 an ounce.


In the week to come there are two major economic reports that ill have analysts glued to it.
1)    April Retail sales report to be released in Wednesday
2)    Regional manufacturing data for May to be released on Friday from New York

The retails sales reports is expected to rise 0.3% in April. Forecasts for the Empire State survey, show economists expect the index to rise to 5.2 this month, after falling to negative 1.2 in April.

If any of the reports come out negative then it would have a major impact on Fed rate hike expectations.
A weak retail sales number for April still isn’t going to stop the Fed from hiking in September.
Gold has fallen below people’s expectations and it will take something significant to get it back their trust. Until something unexpected happens, eventual rate hikes will continue to overhang the gold market.

Although gold is expected to remain range-bound next week, some analysts do see some positives that could help prices hover above the $1,200 an ounce level.
With little economic data to provide any solid direction for gold, some analysts are looking at outside markets for some guidance.

Apart from the two major US data reports analysts will be tracking the following-
⦁    Bank of England's (BoE) interest rate decision
⦁    GDP data from the UK, Germany and from the Eurozone

Any unexpected geopolitical event like The Greek crisis, for instance, could prop up prices if Athens and EU officials fail to reach a deal needed to release bailout money to the cash-strapped nation.

Analysts are unsure as to how gold prices will move next week and expect bullion to take its cues from the financial markets, where any sign of volatility could help boost the metal's safe-haven status.

TRADE RANGE



METAL
INTERNATIONAL
DOMESTIC
GOLD
$1178- $1220 an ounce
Rs.26,500- Rs.27,500 per 10g
SILVER
$16.00- $17.20
Rs.36,000- Rs.39,500 per kg



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

- Previous blog -
"A Volatile Week Waits For Gold"
riddisiddhibullionsltd.blogspot.in/2015/05/rsbl-volatile-week-waits-for-gold.html