AWAITING A GOLDEN YEAR:RSBL

By Mr. Prithviraj Kothari, MD, RSBL

Holiday fever, kept the markets calm with very little volatility in gold prices.

After the Federal Reserve’s interest-rate rise last week, trading remains cautious while investors assess conditions in a non-zero bound environment for the first time in seven years.

Gold prices ended the U.S. day session and a holiday-shortened trading week modestly higher Thursday. Some short covering in the futures market and perceived bargain-basement buying in the cash market heading into a long weekend gave gold its lift.

There were no major international news developments Thursday and the marketplace worldwide was very subdued ahead of the Christmas holiday on Friday.

Spot gold was last at $1,073.60/1,073.90 per ounce, a $2 increase on Wednesday’s close. The yellow metal has climbed away from five-year lows from the start of the month of just $1,046.40.

The gold price was higher on Thursday morning, tracking the recovery in the oil price and a slight decline in the dollar, in thin pre-Christmas trading conditions.

Now that we have rounded up for the week, I would also like to share my view on gold outlook for 2016.

As we all have seen that after increasing consecutively for 11 years, gold started giving negative returns since 2013.  Formerly gold was seen as the highest return generating asset in its class. But now economies have changed and people have shifted to other modes of investment like equities and hence gold has lost its appeal as a safe haven asset.

Will gold bottom further? Has it reached its support level? What’s in store for gold in 2016? 

 Well these questions have been constantly rotating the market since the past fortnight, especially after the fed rate hike.

Everyone in the markets had hopes that the Fed will raise interest rates for the first time in a decade. The day the Fed increased its rates we saw ETF gain 18.6 tonnes for the first time in the past three years. Everyone thought that a rate hike would slosh gold prices but gold managed to stabilize at 1075$ and did not decline as expected.

Moreover, if we see from the mining aspect, the mining cost of gold is around 1000 $- 1050 $ and I don’t see gold going below that level. Now that gold has already witnessed this bottom. I think this year gold might appreciate around 7-8 per cent compared to last year.

Moving on to the Indian markets. As far as the Indian markets are concerned, the INR is gradually appreciating which is in turn affecting gold prices. If you see the international market. Gold may bottom at 1000/1050 dollar and may witness an upswing towards 1200-1300 dollars. But at the same time the rupee appreciating will bring gold in the range of Rs. 24,000- Rs.30, 000 in 2016.

The population of India is 125 crore. Every year 800-900 tonnes gold is imported whether the price is $1900 or $700. A matter of concern is the custom duty that is currently 10 percent. Due to this, there is a huge difference between off shore and domestic markets. This duty increases gold prices by Rs.2, 50,000 per kilo. 

Due to high duty the quantity of gold smuggled into the country is also rising.  Last year around 200 tonnes of gold was smuggled. And this year the figure might touch and 300 tonnes thus bringing the official import figures down to 500-600 tonnes. 

The government has been trying its best to get some viable and profitable schemes into the market like the gold monetization scheme and gold sovereign bonds. Gold sovereign bonds are not a viable option as prices are fixed at Rs.26840 and currently the prices are almost 5per cent down.

Gold monetization is a scheme where the temples are more willing to deposit gold in banks. This scheme may take time for proper implementation but once it pick up we are really positive that the idle gold lying in the temples and Indian household) almost 500-1000 tonnes) will be flushed into the market and this would really help the economy.

  

To conclude I would say that 2015 was a year with nervous sentiments. But 2016 could be the golden year literally especially the jewelers and the investors.

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 -
"Markets Remain Calm For Gold: RSBL"
http://riddisiddhibullionsltd.blogspot.in/2015/12/markets-remain-calm-for-gold-rsbl.html 

TRICKY WEEK FOR GOLD: RSBL

By Mr. Prithviraj Kothari, MD, RSBL

Following a 3 year trend, gold is once again on a decline, losing 9.8 percent of its value this year.

Gold, which touched a five-year low last week, was little changed during the start of the week, Prices fell on Thursday as a stronger dollar reduced the appeal of the metal as an alternative asset.

Gold futures remained lower on Thursday, after data showed the number of people who filed for unemployment assistance in the U.S. rose to the highest level in five months last week, but remained in territory usually associated with a firming labor market.

The U.S. Department of Labor Said the number of individuals filing for initial jobless benefits increased by 13,000 last week to 282,000. Analysts expected jobless claims to hold steady at 269,000 last week.

The dollar index, which measures the greenback’s strength against a trade weighted basket of six major currencies, was up 0.4% to 97.72. Dollar priced commodities become more expensive to investors holding other currencies when the greenback gains.

On Wednesday, gold eased up $1.20, or 0.11%, in familiar trading range, as market players braced for the first U.S. rate hike since 2006 next week. While investors widely expect the Federal Reserve to raise interest rates at its December 15-16 meeting, they anticipate the pace of increases to be gradual amid concerns over tepid growth overseas and divergent monetary policies between the U.S. and other nations.

Gold declined further on Friday and was headed for the seventh weekly drop in eight weeks as investors positioned for a looming U.S. rate hike.

If the Fed raises rates, gold will witness immense volatility. A robust dollar was limiting interest in gold. The greenback rose for a second session on Friday, extending a rebound from a one-month low on expectations of a rate hike.

A higher dollar makes greenback-denominated gold more expensive for holders of other currencies.  Weakness in oil was also hurting bullion. A slide in oil could trigger fears of deflation, a bearish factor for gold, which is often used as a hedge against oil-led inflation.

 A strong U.S. nonfarm payrolls report last week cemented expectations of a rate hike at the Federal Reserve’s policy meeting on Dec. 15-16.

Traders have been restrained to stride into the market before the Federal Open Market Committee (FOMC) convenes next Tuesday and Wednesday.

Gold has witnessed obstinate gusts, as dollar, real rates; commodity prices and volatility have all not motivated investors to increase their exposure to the yellow metal.

The approaching Fed rate hike, has been one of the most influential factors that has put a block in the price rise of gold. And if any such hike is announced then gold prices might fall to $950 in the near future.

Recently hawkish Fed member statements have essentially turned the meeting into a guaranteed launch of the US policy normalization.

Industry watchers are largely expecting the US Federal Reserve to lift its federal fund rate next week for the first time in almost a decade after positive US payrolls data in the recent months.

The first hike in nearly a decade is expected to dent demand for gold, a non-interest paying asset.

Gold is going nowhere as investors expect trading within tight ranges before next week’s Federal Reserve meeting, where policy makers are forecast to raise interest rates for the first time since 2006.

Traders are expecting that borrowing costs will be increased at the Federal Open Market Committee gathering on Dec. 15-16, a decision that would dank the appeal of bullion because it doesn’t pay interest. Gold has swung between gains and losses the last two weeks as Fed Chair Janet Yellen, along with Fed Bank of St. Louis President James Bullard, have said the pace of tightening will be gradual.

Now the market waits impatiently for the Fed with one week to go.

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 -

"Gold Bounces Back: RSBL"

http://riddisiddhibullionsltd.blogspot.in/2015/12/gold-bounces-back-rsbl.html 

GOLD BOUNCES BACK: RSBL

 By Mr. Prithviraj Kothari,MD, RSBL

Christmas seems to have come in early for gold as it finished the week on a strong note, ending a six-week losing streak and bouncing off a fresh 5 and-a-half year low.

After hitting a 5.5-year low earlier this week, Gold prices prepared to end Friday's session on a very upbeat note, with the metal up 2% during the day.

The magic move happened despite a relatively in-line November jobs report that all strengthened the expectations that the Federal Reserve will raise rates after its monetary policy meeting December 16.

Gold’s rally started in earnest Friday, following the release of November’s nonfarm payrolls report, which was relatively in line with expectations.

Because expectations of a rate hike are close to fully priced into the markets, many investors and traders are starting to doubt whether the U.S. dollar can move higher under current market conditions, prompting them to take profits in their long U.S. dollar positions.

Good news for gold also came in when the Euro rebounded over the announcement of a minimum cut in its deposit rate over the disappointing market by the European Central. The central bank eased its monetary policy, dropping its deposit rate to negative 0.30% from negative 0.20% on Thursday.

The rebound in the euro, following the ECB’s monetary easing that was less than expected, pushed the dollar index down to 97.59, last at 98.30 and that seems to be helping to underpin the metals.

Markets eagerly awaited the US employment report that is likely to be the next directional influence on the dollar and markets generally. 

The gold prices recovered after falling to fresh five-and-a-half year lows during Thursday morning trading after Asian participants reacted to the strong US job data from the previous session.  

Spot gold was indicated $1,053.20/1,053.50 per ounce, down $0.80 from Wednesday and off its session low of $1,046.40, its lowest since February 2010 – market participants largely expect the US FOMC to increase interest rates this month. 

The Bureau of Labor Statistics, on Friday,  said 211,000 jobs were created in November, down from October’s upwardly revised number of 298,000; September's employment report was also revised higher to 145,000, from the previous report of 137,000. The report noted that 35,000 more jobs were added in the previous two months as a result of the revisions.

According to consensus estimates, economists were expecting to see job gains of 200,000.

Over the past 3 months, job gains have averaged 218,000 per month. As expected the unemployment rate held steady at 5.0% last month; at the same time the participation rate was little changed at 62.5%.

As anticipated the U.S. labor market cooled off a little in November after seeing immense gains in the previous month; however, the job growth still managed to slightly beat outlooks, according to the latest employment data from the Labor Department.

It was one of last few data releases before the Federal Reserve meets in two weeks to decide whether to raise interest rates and these reports will play a significant role for the same.

This raises expectation that the Fed has a go ahead signal to increase interest rates on December 16 as long as other things remain steady globally over the next few weeks.

Yellen has been adamant about raising rates before the year concludes, citing concerns over an expedited tightening cycle if the policy-board waits until 2016.

With another two weeks to go before the Federal Open Market Committee meets to discuss raising rates for the first time since 2006 the market remains focused on the expected positive impact such a move might have on the dollar together with the subsequent negative gold impact. Taking a look at the past four rate hikes we actually find that instead of rising, the dollar has weakened in the weeks and months following the first announcement. 

While this time round may be different considering the expected diverging trajectories of the ECB and FOMC it nevertheless raises the risk of a correction both on dollar longs and gold shorts. Not least considering the big jump in positioning seen in both markets during November.  

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 -
"Critical Week For Gold: RSBL"
http://riddisiddhibullionsltd.blogspot.in/2015/11/critical-week-for-gold-rsbl.html 

CRITICAL WEEK FOR GOLD : RSBL

By Mr. Prithviraj Kothari, MD, RSBL

Recently, gold is being pulled apart by two significant forces. On one side where the escalating tensions in the Middle East are igniting gold prices a December rate hike is pulling them down on the other side.

Off late, there has been some excitement regarding gold as tensions escalate in Middle East. Turkey had downed a Russian Military Jet, accusing violation of air space, which Russia denied. Russia warned Turkey over serious retaliation and now sending an advanced air defense system to protect its air crafts. NATO members are scratching their heads over how Russia might retaliate.

Gold made some gains overnight on a slight softening in the dollar and heightened geopolitical tensions after Turkey shot down a Russian warplane but these proved short-lived.

Gold prices edged lower on Wednesday morning in London on growing expectations of a December interest-rate rise by the US Federal Reserve, which continued to weigh on sentiment.

The spot gold price traded at $1,073.70/1,074 per ounce, down $1.50 on Tuesday’s close. 

Markets were focused on the economic data that was released in the US ahead of the Thanksgiving holidays on Thursday. The reports included the core durable goods orders, unemployment claims, the core PCE price index, durable goods orders, personal spending and new home sales.

In spite of the release of these reports, market volatility had been low on Thursday due to Thanksgiving holiday in the US.

The metal is trading at its lowest levels since February 2010 as investors weigh the prospects of higher US interest rates after data pointed to a strengthening economy. With gold typically seen as a haven asset, demand for the metal is falling on the prospect of higher returns in US securities.

Moreover gold will lose its appeal post a rate hike. Raising rates “increases the opportunity cost of holding gold. Gold has zero yields — it actually costs you money to hold it — so there’s more incentive to put your money into a yield-earning dollar investment and hence the demand for gold will decline.

Currently market participants currently see a 78 percent chance of a US rate lift-off by year-end, according to the CME Group Fed Watch – a tool to gauge the market’s view of an interest rate hike. 

If the rate hike expectations are met, the US dollar is likely to gain further. Gold tends to move inversely to the greenback. A stronger dollar pressures all commodities since it makes them more expensive in other currencies, plus some investors are less likely to buy gold as an alternative currency when the greenback is muscular.

Thanksgiving may be over in the U.S., but traders will still have a full plate next week.

Fed Meeting- The US Federal Reserve will meet on December 15-16 to decide if will lift interest rates from near-zero levels for the first time in almost a decade.

Moreover, markers will watch Yellen’s comments to see if she offers any further clues on what to expect in the way of monetary policy when the Federal Open Market Committee meets. Yellen is scheduled to appear before the Economic Club of Washington on Wednesday.

Major reports- Other major U.S. reports next week include :-

• The Chicago Purchasing Managers Index on Monday
• Institute for Supply Management manufacturing PMI Tuesday  
• The ADP private-sector jobs and Fed Beige Book report Wednesday 
• Non-manufacturing index and weekly jobless claims on Thursday.

The robustness of the November employemnt  report may put the final nail in the rate raise coffin, one way or another. Employment will have to be very weak for the Fed not to go ahead with rate liftoff.

ECB- the European Central Bank will meet next Thursday and expectations are for it to expand its asset purchase program and cutting its deposit rate. ECB will announce further loosening of monetary policy while the Fed starts tightening. The ECB holds a monetary-policy meeting. Expectations have been growing for the central bank to increase its asset-purchase program known as quantitative easing, particularly after ECB President Mario Draghi said last week that “we will do what we must” to raise inflation to an acceptable level.

ECB monetary policy and US NFP report for November scheduled next week is happening close to a key support area and is very critical for gold.  As a result, traders will be on the lookout for the November report next Friday.

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 -
" GOLD FAILS TO ATTRACT SAFE HAVEN BUYING : RSBL"
http://riddisiddhibullionsltd.blogspot.in/2015/11/gold-fails-to-attract-safe-haven-buying.html