Gold expected to cross $1375 mark

Gold prices have risen to the highest level since November last year as investors shift away from risky assets in the wake of geopolitical uncertainty.

Futures for the yellow metal rose to $1,303.90 per ounce, while spot gold remained just below $1,300 per ounce.

A market that was once worried about the nuclear war has now moved on a host of other factors that are creating concerns for various market players.

Let’s have a look at the various factors that created jitters in the market in the past week.

Barcelona Attacks - Heightened terror fears added to the risk off sentiment after at least 13 people died when a van plowed into pedestrians in Barcelona. The terror attack was a reminder of lingering geopolitical risks, with nerves still raw after last fortnight’s escalation of tensions on the Korean peninsula.

Investors fled into German and U.S. Treasury bonds and bought gold for the third day in a row, as the appeal of such top-notch assets grew further due to this deadly attack.

US Data - The global risk-off mood accelerated overnight on Trump "stability concerns", coupled with fallout from the Spain terrorist attack and lingering North Korea tensions.

Data released showed that Jobless claims for the week ending Aug. 12 came in at 232,000, versus expectations of 240,000. The Philadelphia Fed Index, gauging overall manufacturing conditions, came in at 18.9 for August, compared with consensus estimates of 18.5.

Industrial production grew 0.2% on the month in July, slipping below estimates of 0.3%.Concerns that Trump’s stimulus is in peril spiked following speculation that his top economic advisor, former Goldman COO Gary Cohn, was set to resign roiled markets on Thursday until reports that he’d opted to stay on board steadied the ship, however the weak dollar and dialling back of US Federal Reserve (Fed) monetary tightening expectations has given a modest lift to the precious metals, which stood up high.

US Dollar - The dollar was pulled lower on Wednesday as traders grappled with the prospect that the Federal Reserve might not raise interest rates again this year following the release of the Fed’s July meeting minutes.

The U.S. dollar retreated against haven currencies like the Swiss franc and the Japanese yen Thursday, following a day of negative headlines.

Earlier on Thursday, the greenback was propped up by weakness in the euro EURUSD, -0.0850% following the release of dovish minutes from the European Central Bank’s last meeting. The U.S. unit also remained stable as initial jobless claims and the Philadelphia Fed Index came in better than expected, but was weaker than the prior period, while industrial-production data missed expectations.

FED comments - The metal started its rise from $1268 on Thursday afternoon after the release of Fed minutes from the July FOMC policy meeting, according to which policymakers grew increasingly concerned about the sluggish inflation numbers. Whilst also on Thursday US President Donald Trump fell out with business leaders over his response to the recent turmoil in Charlottesville.
This followed a mixed session on Thursday in which gold strengthened a little while the rest of the complex was under downward pressure in spite of a friendlier macro backdrop (i.e. lower US real rates, equity losses) due to the release of dovish US Federal Open Market Committee minutes on Wednesday and dovish Fed speech.

Geo political uncertainty - Gold’s status as a safe-haven asset has seen investor demand surge during periods of heightened risk. In recent times, however, President Trump's combative style has seen safe-haven buying reach a sustainable high level. With tensions around North Korea and Iran rising, this is unlikely to subside any time soon.

Gold Supply - political uncertainty has been impacting investment in supply. In fact, global mine supply has fallen in 2017. According to World Bureau of Metal Statistics, gold production is down 2% y/y in the first five months of the year. Production in May alone was down 3.1% y/y. Growth in mine output is at its lowest point since the financial crisis, with risks only getting greater

Although Gold failed to break above $1300/oz today (Friday), it remains in position to do so because of its renewed strength in real terms. As long as the US$ index does not rally hard, we expect Gold to break above $1300 and reach $1375. The gold stocks as a group have been lagging recently but in the event of a Gold breakout, we foresee significant upside potential as the group could play catch up.

Fundamentals for Gold are strong

As we have noticed in the past months, it was mainly the dollar and Fed actions that were influencing gold prices. But last week geopolitical tensions were fueling gold prices.

Gold was on the move in the past week after a display of threat of the military force by the U.S. and North Korea pushed the safe-haven metal back onto investors' radar.

President Trump said on Tuesday that threats by the Hermit Kingdom would be met by "fire and fury," which was followed up a day later by a North Korea threat to bomb the U.S. territory of Guam.
The yellow metal climbed to $1,285/oz as tensions rose this week, the best level in about two months, driving year-to-date gains to around 11.5%.

Gold has always been considered as a safe haven asset in times of uncertainty. The current rally in gold prices is because of the rise in safe haven demand for gold.

President Donald Trump intensified up his orotundity toward North Korea and its leader on Thursday, warning Pyongyang against attacking Guam or U.S. allies after it disclosed plans to fire missiles over Japan to land near the U.S. Pacific territory.             

Gold prices rose early Wednesday amid rising tensions between the United States and North Korea after the North responded to warnings from U.S.

President Donald Trump with a threat to strike the U.S.territory of Guam.   

Though prices rose on Wednesday and Thursday, by the end of the week, prices more or less stabilized. 

Gold prices held steady after touching their highest in more than two months on Friday, as rising tensions between the United States and North Korea triggered safe-haven buying.

Geopolitical risks can boost demand for assets considered safe-haven investments, such as gold. Although more hostile magniloquence between the U.S. and North officials would temporarily boost gold prices, we see outright military action as unlikely and upward pressure on gold prices stemming from the confrontation as limited.

Meanwhile, a lower-than-expected rise in U.S. consumer prices in July suggesting benign inflation could persuade a cautious Federal Reserve to delay raising interest rates until December.                

Gold is seen being stable over easing out of the geopolitical tensions. But still, a minor escalation over the tensions can once again trigger gold prices. Hence the situation currently is quite unpredictable. 

On the other hand, The Fed expects "very weak" U.S. inflation to rebound thanks to a slide in the dollar and to a labour market that keeps getting hotter, one of the Fed's most influential officials said in comments that reinforce its gradual policy-tightening plan

Gold edged down from two-monthhighs on Monday, 14th August, , as the dollar inched up from last week's lowsand investors kept a close watch on any developments on tensionsover the Korean peninsula.

Summing it up we can say that though the threats from the Koreans have lowered, the fundamentals for gold still seem to be strong.

Green back gives backing to gold

It was a quiet Monday for gold on 24th July followed by a little change in gold and silver prices on Tuesday. Spot gold prices were at $1,255.60 per oz and silver at $16.46 per oz, while the PGMs were looking stronger with gains of 0.6%.

Gold’s rebound has found new vigor on the combination of the weaker dollar and the less hawkish US Federal Reserve stance. Dollar weakness has stemmed from the weak political scene in Washington which has resulted in a push in gold prices. Gold is sensitive to moves higher in both U.S. rates and the dollar. Weaker dollar makes gold less expensive for holders of foreign currency, while a rise in U.S. rates lifts the opportunity cost of holding non-yielding assets such as bullion.

Gold prices held steady on Friday as investors locked in profits from the precious metal's rally to six-week highs on Thursday and as markets awaited the release of U.S. second-quarter growth data due later in the day.

U.S. 2Q GDP figures released on Friday showed the economy grew at an annualized pace of 2.6% q/q, slightly missing consensus, with the Core Personal Consumption Expenditure (PCE) topping expectations with a print of 0.9% q/q. The data did little to shift expectations for a December interest rate hike with markets still pricing a roughly 50/50 chance the Fed will hike again this year.

Gold prices rallied for the third consecutive week with the precious metal rallying 1.9% to trade at 1268 ahead of the New York close on Friday. The advance comes alongside continued weakness in the greenback.

The dollar remained under pressure after the Fed said on Wednesday that inflation remains below its 2% target even as near-term risks to the economic outlook appear "roughly balanced". In the past, the Fed judged that weakness in inflation was transitory. The central bank's cautious tone on inflation sparked fresh uncertainty over the possibility of a third rate hike this year.

The greenback was also weakened by data on Thursday showing that initial jobless claims rose by 10,000 to 244,000 last week. Analysts expected jobless claims to rise by 7,000 to 241,000 last week.
Gold prices have done well, especially with equity markets setting fresh highs, but the weaker dollar of late has no doubt helped fuel the rally and it may be that as equities are setting fresh highs, more investors are expecting a correction so may be putting more into havens. Silver has been following gold, platinum prices have struggled to follow gold and palladium is still consolidating after the strong run in May/June. For now we expect the dollar to be the main driver in gold prices.

This week began with a positive note for gold as it Monday held around its highest price in nearly seven weeks as tensions on the Korean peninsula boosted safe-haven demand for the metal and as the U.S. dollar hovered close to multi-month lows.

News that North Korea has conducted yet another missile test spurred a late-week push higher in gold prices which stretched into near-term resistance just ahead of the European close.

The United States flew two supersonic B-1B bombers over the Korean peninsula in a show of force on Sunday and the U.S. ambassador to the United Nations said China, Japan and South Korea needed to do more after Pyongyang's latest missile tests.

Though a weaker dollar is the main driver for gold prices, currently deepening political turmoil in Washington and North Korea's progress on ballistic missiles will all ensure the uncertainty premium continues to support gold's price.

Looking ahead to next week, markets will be closely eyeing central bank interest rate decisions from the Reserve Bank of Australia (RBA) & the Bank of England (BOE) with the highly anticipated U.S. Non-Farm Payroll report slated for Friday. While the broader outlook for bullion remains constructive, prices are eyeing near-term resistance heading into the close of the month and could limit the topside near-term.

Gold Dips expected to remain Supported

Gold and other metals had a firm start for the week which continued over Tuesday. Gold and the other precious metals were firmer on Tuesday morning, with prices up an average of 0.4% while gold prices were up 0.3% at $1,237.35 per oz. This was seen as an after effect of a strong performance on Monday when the complex closed up an average of 0.8%.

Gold was more or less stable on Wednesday as it opened at 1241.75/1242.75 per ounce. Post which it rose to a high of 1243.50/1244.50 before retreating to a low of 1239.00/1240.00 as the dollar pared early losses and the euro fell back from yesterday’s 14-month high.

Gold prices are gaining from the weak dollar prices and lower bond yields which help in reducing the opportunity cost of holding gold thus pushing its prices higher.  Prices have firmed up in recent days, this despite geopolitical concerns being light but the weaker dollar and a less hawkish US Federal Reserve seem to be underpinning price rises.

But at the same time, buoyant equities are also a headwind for gold and the lull in geopolitical tensions is not getting any good for gold. So the expectations of a steep rise in gold prices aren’t strong currently.

All in all, we are not expecting much from the precious metals camp in the short term, but we expect dips to remain supported.

GOLD STABILISES AMIDST UNCERTAINTIES

While when gold was just about to continue to maintain its 3 month high last week, there was a sudden pull back and gold prices moved lower by the end of the week.

Gold steadied on Friday, but remained below the week's three-month top as the U.S. dollar and Treasury yields came off their highs after the currency initially jumped on U.S. President Donald Trump's promise of a major tax announcement.

Gold was being pushed and pulled amidst various factors that played key roles in influencing gold prices-

Interest Rate - Gold slid on Thursday from a three-month high in the previous session after strong U.S. economic data pointed to a robust economy, increasing the possibility that the Federal Reserve will raise U.S. interest rates.
U.S. economic data has also strengthened talk that the Federal Reserve would press ahead with U.S. interest rate hikes sooner rather than later.
Gold is highly sensitive to rising U.S. interest rates which increases the opportunity cost of holding non-yielding bullion while boosting the dollar  in which it is priced.

Dollar and Data - U.S. economic data also underpinned the dollar. Initial jobless claims unexpectedly dropped last week to a nearly 43-year low, while inventories at wholesalers surged in December for a second straight month. U.S. import prices rose more than expected in January.
The data showing rising U.S. wholesale inventories and an unexpectedly low number of Americans filing for unemployment benefits further pushed up the dollar and U.S. bond yields.                        
A stronger dollar makes gold more expensive for holders of other currencies, while higher yields increase the opportunity cost of holding non-yielding bullion. Higher interest rates would lift yields further.
           
Tax Announcement - Donald Trump plans to announce the most ambitious tax reform plan since the Reagan era in the next few weeks, the White House said.
On Thursday, sending stock prices and the dollar higher on hopes leading to a cut in corporate tax rates.

French Elections - Investors are concerned about the strong showing in the French presidential race of far-right candidate Marine Le Pen, who has promised to take France out of the euro zone and to hold a referendum on European Union membership.

Gold held near 3-month highs on Thursday as political risks from elections in Europe and worries over U.S. President Donald Trump's policies buoyed safe haven demand for the bullion.

While gold was stabilised by Friday. It was still amongst the favourites for investors. Many of them are being bullish for gold – Reasons being :

• Controversy over U.S. President Donald Trump's temporary travel ban on people from seven Muslim-majority countries has recently boosted gold as a safe-haven asset.
• Further geo-political uncertainties, increasing hostilities in the Ukraine, Greek bailouts, French elections, Iran-U.S. sabre-rattling have supported gold prices and drawn interest from investors who seek support in safe haven assets.
• Investors' bullish stance on gold is reinforced by an increase in net longs by speculators and a rise in holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund. (SPDR holdings rose 0.68 percent to 832.58 tonnes on Wednesday from Tuesday, rising for a sixth straight session.)

Increasing uncertainties has increased the demand for gold as a hedge. Amidst all this, gold prices are expected to rise till Mid Feb. Once January CPI data is released, it will give an idea about the possibility of a rate hike in March which will then be a deciding factor in the movement of gold prices.

2017 - SURPRISES TO UNFOLD FOR GOLD : RSBL

Until Wednesday last week, gold was trading in positive territory continuing the rally from the previous session.

The spot gold price was quoted at $1,164.85/1,165.15 per oz, up $8.05 on the previous close.

There were many supporting factors for gold’s rally-

• Mainly all the uncertainty that lies ahead with the changeover in the US administration 
• Brexit 
• The weakening trend in the yuan. 

On Friday last week, gold slipped following the release of strong US employment data which was as follows-

• The USA added 156,000 jobs in December, compared with 204,000 in November, while wages grew 2.9% year-on-year to reach a seven-year high.
• German industrial production climbed 0.4%, which was down from the 0.7% expected, while the country’s trade balance climbed more than expected. 
• The non-farm employment change for December showed 156,000 Americans entered the workforce, a slight miss from the 175,000 forecast.
• However, the figure for the previous month was revised up 19,000 jobs and the headline unemployment figure came in as expected at 4.7%.
• The big surprise was that average hourly earnings grew by 0.4% month-on-month, bringing total wage growth to 2.9% for the year and the highest level since before the recession.

Gold prices were in positive territory in London on the morning of Monday January 9, recovering slightly from last week’s drop.

The spot gold price was recently quoted at $1,176.20/1,176.50 per oz, up $3.40 on the previous close. Trade has ranged from $1,172.50 to $1,178.75. Gold prices edged up in a technical rebound on Monday after one-month highs hit last week were undercut by the prospects of more interest rate hikes from the US Federal Reserve.

US employment increased less than expected in December but a rebound in wages pointed to sustained labour market momentum that sets up the economy for stronger growth and the prospect of further interest rate increases this year.

Chicago Federal Reserve President Charles Evans said on Friday the central bank could raise interest rates three times this year, faster than he had expected just a few months ago.

Evans and other regional Fed presidents are scheduled to speak this week, and the outlook for U.S. rates may become even clearer when Chair Janet Yellen appears at a webcast town hall meeting with educators on Thursday.

Expectations of US interest rate hikes lowers demand for the non-interest-paying bullion.
Apart from a rate hike the most discussed r rather the most awaited topic currently is the fiscal stimulus that Trump is promising and, of course, inflation.

Despite the rebound in the dollar, gold prices are holding up well – all thanks to the safe haven move by investors, just ahead of the shift in US administration.

By the end of 2016 or rather post the 2016 US election, confidence in the global markets was running high thus propelling gold to lose its safe haven appeal. But 2017 has lot of uncertainties and surprises to unfold for gold which will once again get into the investors basket keeping in the mind its appeal as a safe haven asset in times of global uncertainties.

In the week ahead, investors will be looking ahead to US economic reports, particularly Friday’s retail sales figures for December. Investors will also be watching an appearance by Fed Chair Janet Yellen on Thursday and speeches by a handful of other Fed officials during the week, as well as President-elect Donald Trump on Wednesday for a press conference.

Now investors await the upcoming inauguration of President-elect Donald Trump to see what the volatile leader will implement once in office.

Gold appeal Fading

Gold hitting newer and newer lows have been a current trend confirming a bearish view on the metal’s safe haven appeal. Reasons begin with:

1. Death of uncertainties and acceptance of the same as a new norm.
2. Central banks of the world getting their ticks right to push the economic growth via fiscal and monetary measures.
3. Physical buying cushion; getting softer.
4. Massive reduction in geopolitical tensions with UN forces keeping a check on the extremists.

The upcoming FED meeting will give a glimpse to the US economy getting strengthened. Almost a 100% prediction for a Rate cut in this meeting has put a downward pressure on Gold. Over the course of 2017, there is an expectation that interest rates would be raised by the US Federal Reserve.
Meanwhile, US Dollar has gained a lot of attention due to a rise in US treasury yields and US equity markets causing a downward spiral in Gold prices.

Furthermore, if the recent election outcomes and market reactions to them have taught us anything, it’s that nothing is certain in politics, the global economy and the markets. While I say this, I do understand that the investors have used recent Gold rallies to unwind existing long positions and this is treated unhealthy for an asset’s performance.

While domestic prices would be supported by the Rupee weakness, overall Gold in Dollar terms would trader in the range of US$ 1,080 to US$ 1,200, while Silver would trade in the range of US$ 14.70 to US$ 18.20. In Rupee terms a range of INR 28,200 to INR 29,700 is expected for Gold while INR 39,000 to INR 44,000 is expected for Silver.

HAPPY AKSHAYA TRITIYA: RSBL

                                                    By Mr. Prithviraj Kothari, MD, RSBL

Firstly wishing everyone a very Happy Akshaya Tritiya. May this year be filled with wealth and prosperity.

We have seen many stories being revolved around this auspicious occasion. Our mythology and scriptures are filled with many interesting stories that relate to Akshaya Tritiya. Out of those, the tale if friendship between Lord Krishna and Sudama is relevant not only to understand the importance of this day, but also to emphasize on the need of having a true friend.

Sudama, also known as Kuchela, was one of Krishna’s childhood friends and the two share an equation so strong that it has become a legend of sorts. According to Hindu mythology, while Krishna went on to rule Dwarka, Sudama led a simple life and could hardly make ends meet. He needed all the financial assistance he could to led a normal life. Sudama led a life of poverty. 

One day, his wife could not bear to see their children hungry and said “can’t you ask Lord Krishna for help?” Sudama agreed but decided that he would not ask Krishna for anything. Then Sudama's wife borrowed some puffed rice from a neighbor and gave it to Sudama as a gift for Krishna. When Sudama came to Dwarka, Krishna was overjoyed! Then, he saw his pouch and snatched it fro

m his hand. “Puffed Rice! My favorite dish!” said Krishna and he ate a handful of rice greedily. 

Before he could take a second handful, Rukmini, stopped him, saying “One mouthful will give him all that he needs my Lord!”/ The next morning, Sudama left Dwarka. As he approached his house he saw a grand mansion. His wife and children came out wearing jewels and fine clothes. Sudama was filled with joy and happiness as his friend had given him more than he ever needed. The day when Krishna blessed Sudama with abundant wealth was marked as Akshaya Tritiya. 

This is one of the reasons why this day is celebrated as a day of material gain and wealth. Hence the custom of buying gold, silver, real estate etc has been followed.

Once again, it’s that time of the year where everyone is talking about investing in gold! Buying gold funds, jewelry and coins on Akshaya Tritiya is considered the best way to invest your wealth on this auspicious day. Though nowadays people look for other avenues like real estate, gadgets but nothing can replace gold.

 As the history of our country has it, after Dhanteras, maximum purchase of Gold, Silver and Platinum happen on this day.

People this year are full of mixed feelings-anxiety, excitement, nervousness as a lot is been happening around gold since the past few weeks.

Generally we also witness a price rise few days ahead of Akshaya Tritiya due to the rise in demand for the yellow metal.

In fact demand for gold this year is expected to be better than last year because-

Monsoons- A good monsoon will lead to rise in demand for gold prices this year which will ultimately boos prices. Those who expect further rise in gold prices may advance their purchases.

Strike- the jewelers went on strike after the announcement of excise levy. The industry is gearing up to meet the pent-up demand, which will be witnessed during this Akshaya Tritiya. There were many players who couldn’t make their purchases during the strike and will now enter the market to buy gold on this auspicious day

Gold rally- Recent rally in gold prices due to global influential factors have propelled investors and traders to anticipate further price rise which has pre-poned their purchases of the yellow metal.

As we all know this quarter has been the best quarter for gold in the past three decades. Prices have ranged between Rs.24, 910 to Rs.30, 300 per 10 gram. On one side where we see sales dampening due to this high volatility, on the other hand we also expect the demand for gold to rise given the global and domestic factors that have been influencing gold.

Traders also anticipate that in terms of volume, consumer demand might witness a negative growth of about 10%, but in value terms, it is likely to be at par with last year’s sales.

Above all demand for gold this year is expected to be comparatively better that the past 2 years.

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

"RSBL: Gold & Silver Price Rise"

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