Gold Gains Momentum, Investors Gain Confidence!

- By Mr. Prithviraj Kothari, MD, RSBL

While gold gained momentum, investors gained confidence in gold. Gold spurred the longest price rally in six months. Initially gold was on low, but prices got pushed higher by the end of the week.

On Monday, gold fell to nearly a three week low as we witnessed outflows from the worlds biggest bullion backed Exchange Traded Fund (ETF). Moreover, a lack of a further increase in geopolitical tension also prompted selling in gold. Last week, the fund's outflows totalled 9.3 tonnes, erasing all the gains made in the year.  

Gold fell to its lowest since mid-February on Tuesday after U.S. housing data beat expectations, boosting confidence in the U.S. economic recovery and lifting stock markets, which hurt gold's appeal as an alternative investment. 

On Wednesday, gold had firmed its position above a two and a half month low of $1,268.24 due to firmer equities and a weaker technical picture that had triggered strong selling,

However, the tables turned on Thursday as rising geopolitical tensions and options related buying helped gold in moving in the opposite direction and reverse the early sharp losses

Bullion prices mounted after Ukrainian forces killed up to five pro-Moscow rebels as they closed in on the separatists' military stronghold in the east. 

In March, bullion Prices reached a 6 month high after Russia took over Crimea. But then it fell almost 9 percent on signs that peace would return. But once again Hostilities this week are bringing back the gold bulls. Tensions between Moscow and Western powers over Ukraine are lending gold support, but it remains in a somewhat fragile situation as interest from long-term investors is still absent.

Though on the basis of the economic indicators of the US economy, there were signs of recovery, the conflict between Russia and Ukraine spurred traders to unwind bets on a drop. The metal has risen 8.2 percent in 2014 even though economic recovery has pushed the Federal Reserve to reduce its monetary easing. This tapering was responsible behind the 28 per cent drop in gold in 2013 because if the Fed would scale back its bond purchase then gold would lose its appeal of being an inflation hedge tool.

Apart from the Ukraine crisis, another big news that made rounds in the market was that major international banks were jettisoning their commodities business.*

Around 20 US based investors have filed antitrust claims against major leading banks over the past two months.  These investors have accused Barclay, Deutsche Bank, HSBC, Bank of Nova Scotia and Societe Generale of colluding to manipulate the gold price.

The court cases are complicating negotiations that Deutsche Bank had started with potential buyers after it announced in January that it was putting its seat at the fix up for sale, a source with knowledge of the matter said. In case any such decision is taking of discontinuing the commodity trading wings business then this will definitely calm down the price volatility of bullion prices.

Another fact the will play a major role in determining the gold prices is the worldwide demand from gold. CHINA- Chinese demand for gold is set to increase from the current level of 1,132 tonnes a year to 1,350 by 2017, cementing its place as the world’s largest gold market. According to report published by the World Gold Council, entitled:  ‘China’s gold market: progress and prospects’, private demand for gold in China will see sustained growth over the next four years.

China does not report any trade numbers. The only source of procuring these gold export numbers to China is through Hong Kong as its the prime medium of gold for China. But now that China has allowed Gold imports via Beijing, it may threaten Hong Kong’s export numbers to mainland.

INDIA- Physical demand in India over the next week is expected to rise as the country welcomes the auspicious occasion of Akshaya Tritiya on may 2. This could result in a slight pickup in gold demand , but with the heavy tariffs placed on gold, there are questions on how much buying will actually occur.

UK- Demand for gold from UK is tend to augment as investors are saving up for retirement with the U.K.’s Financial Conduct Authority considering adding bullion to its list of “standard assets. Last year, the FCA was replaced by The Financial Services Authority to oversee market regulation. They published a consultation paper with the list in 2012, asking whether other types of investment should be added. Various forms like Cash, bonds and exchange-traded commodities were included but  physical gold was not. There are expectations that gold may be added to the list by June. If any such possibility materializes then demand for gold from UK will definitely rise as gold is on the radar of more mainstream investors. 

Next week is full of revelation for gold as the market moving and price deterring event will unwrap for gold. With a Federal Reserve monetary policy meeting and April non-farm payrolls data set for release; additionally, any change in the standoff between Russia and Ukraine has the ability to move markets.

Moreover, The Federal Open Market Committee meets Tuesday and Wednesday, and economists said they expect the Fed to announce another $10 billion-a-month cut in its quantitative easing program, and on Friday the Labor Department is scheduled to release its April non-farm payrolls data.

Gold traders will have to be nimble next week as these headline-making events could cause volatile market action. Because of the uncertainty over the Ukraine situation, several gold-market players believe that gold prices will once again move upwards.

*source- http://in.reuters.com/

- Previous blog - "Gold Prices Off Route"

http://www.riddisiddhibullionsltd.blogspot.in/2014/04/gold-prices-of-route.html

CHINA SUPPORT FOR GOLD!

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

The world witnessed one of the greatest historic deals as an agreement was reached between the United States and Iran over Iran's nuclear ambitions. This breaking news on the geo political front created hype hoopla in the market.

However, the sentiments subdued on Thursday as the US markets were for the annual Thanksgiving. Hence gold managed to snap a two day losing streak with spot prices closing at $1243.60. Overall Gold had nothing to gobble about this week, with the precious metal mired in the $1,240 range amid low volumes due to the US Thanksgiving holiday.

Gold is down 6.1 percent in November, the worst performance since June, when prices touched a 34-month low of $1,180.50, and is little changed this week. The deal between US and Iran showed signs of decreased tensions in the Middle East which in turn pushed down gold and oil prices. Peace between the two countries means that Iranians will push up crude supplies and this created a drop in prices.

U.S. data this week showed jobless claims unexpectedly fell and leading economic indicators rose for a fourth month. Fed minutes released on Nov. 20 signalled that policy makers expected an improving economy to warrant trimming debt purchases in coming months. Also the jobs reports showed a 10,000 drop in weekly jobless claims, and this pushed gold futures under the 1240$ mark to 1239.60$.

Moreover, holdings in the world’s largest gold exchange-traded fund, the SPDR Gold Trust, fell by 5.7 tonnes on Wednesday, to their lowest level since 2009, Reuters reported

However, the losses were limited by a weaker dollar.

But what came as a silver lining in the dark clouds was the demand for gold from China. This is one country that hasn't lost its appetite for gold and has now set to become the largest consumer of gold in the world taking over India that has been sitting at this position since years. The Asian nation imported a whopping 131 tonnes of gold in October through Hong Kong — the sixth month in a row that China has brought in greater than 100 tonnes of the yellow metal. On Thursday, traded volumes of 99.99 percent purity gold on the Shanghai Gold Exchange hit their highest in seven weeks further driving the momentum on the physical market front.  As the Chinese gold demand will continue to pick up before the lunar New Year at the end of January 2014, China will likely overtake India as the largest consumer in the world in 2013. 

When looking at India; the average import of gold by India was around 60-80 mt per month (up to September). However, most of the gold imports took place during the first six months of this year, after which imports declined sharply. China, in comparison, has imported on average 80mt per month from only Hong Kong (total China gold imports could be higher). 

But the import numbers from India and China should be viewed in light of ETF liquidations. Over the course of the year, ETF liquidation has flooded the market with gold, in particular in April, May and June. The liquidation in April in particular almost matched combined imports into China and India for that month. Furthermore, since July, Indian imports have slowed substantially.

Looking at all this physical demand for gold is not the key driver for gold prices. There are other factors responsible for its movement. The prices of the metal move more on the basis of developments in the paper market as well tracks the comments and policy directives from major global central banks.

This is why Gold despite being having decent physical market demand is headed for its biggest monthly drop since June while is on track to its first annual loss in 13 years. 

What one needs to monitor is the final November PMI from China, E17, U.K. as well as the U.S. on 2 December, the U.S. initial jobless claims and the U.K. and the ECB monetary policy decisions on 5 December as well as the November U.S. non-farm payrolls, the unemployment rate, and the October core PCE price index

The extended rise in US and other western equity indices is leading traders and investors away from gold which is treated as a hedge against economic and financial uncertainty

The trade range for gold is $1210- $1277 an ounce in the international market and Rs.29500- Rs. 31,500 per 10 gram in the domestic market.

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.

- Previous blog -

"FED UP?????"

http://www.riddisiddhibullionsltd.blogspot.in/2013/11/fed-up.html