DOLLAR DRAWING DIRECTIONS FOR GOLD

by Mr. Prithviraj Kothari, MD, RSBL

                                                     

During the financial crisis in September 2008, gold price rose $50 in a single trading day on 18th September. Investors adapted gold as they perceived this asset to be a safe haven in terms of liquidity and security.  This day was marked in history as it was after February 1980 that gold had made such a huge jump in one single day. in 1979 and 1980, the world witnessed global uncertainty. At that time the key influencers for gold were the Russian invasion of Afghanistan and the Iranian hostage crisis. Most of these factors were geopolitical. 

Even today gold has been hovering around the geo political uncertainties. In fact during 1980 it as just geo political tension but today its lots more. Terrorism along with financial uncertainties have had a great impact on gold prices.

The key driver of the gold price at the moment is perceived to be the relative strength of the US dollar, yet the US dollar is only stronger compared to the other main currencies because these currencies, such as the Euro, are weak due to their economies remaining weak and their money supplies having been debased.

Gold is falling on concerns over strengthening US economy and the stronger dollar. Dollar gained ahead of the data to be released next week which includes the monthly employment numbers that the Fed will be watching. Currently it appears that while the rest of the world is in the doldrums, The US economy is performing comparatively well. The Dollar index hit a high of 85.68 and closed at 85.64 for the week on strong economic data from the US.

U.S. economy has grown in fastest pace in 2 and a half years in the second quarter. The Commerce department raised its estimate of growth in gross domestic product to a 4.6% annual rate from the 4.2% pace reported last month.

During the week, gold traded near the lowest level in almost nine months as the dollar rose to a four-year high amid prospects of higher borrowing costs as the U.S economy improves. 

Though September is considered as one the best performing months for gold, this year the yellow metal has declined 5.3 percent in this month itself. After dropping to $1207.04 on September 25, it has touched the lowest level since 2nd January. 

Gold prices continued their downhill ride to touch a low of $1,207/ounce last week. However, they bounced from that point and closed the week at $1,218/ounce, up from $1,215.7/ounce in the previous week. The fear of gold  miners cutting down on production if prices plunge below $1,200 is holding prices. The cost of production of major gold miners is about $1,350/ounce now, according to estimates of analysts.

Despite the news of US-led strikes against militants in Syria, gold prices didn't move up much as expected as metal continues to loose its safe haven appeal to investors. The US SPDR Gold Trust, the largest gold-backed exchange-traded fund, saw its holdings are at 772.25 tonnes on Friday - the lowest since December 2008.

Gold is also heading towards its first quarterly loss this year as strong data coming from US has made the metal weak. Data last week showed the world’s largest economy grew the most since 2011 in the second quarter. Consumer spending accounts for about 70 percent of gross domestic product. In the US, data showed that sale of new homes surged in August and hit its highest level in more than six years. Also, the final estimate of the second quarter (April-June) GDP that was released on Friday showed that the US economy expanded by 4.6 per cent.

Hence I still feel that The dollar remains the driver of gold direction.

Though geopolitical worries may not give that push or support to gold prices, there are chances that gold may witnessed recovery and not fall significantly from current levels. 

with the mining costs of most gold producers at $1,330-1,350/ounce, they can shut mines and stop new explorations. In such a case, supply will fall and curtail prices from slipping lower.

Moreover, if the dollar continues to rally, there may soon come a point when it will turn a concern for exporters in the country.

Demand has always been a supportive factor for Gold prices and it shall continue to do so in the near future:

World's largest bullion consumer- China- has been importing more gold in September than in the previous month due to demand from retailers who are stocking up gold for the upcoming National Day Holiday. From 1st October, Chinese markets will closed for a week and during this period retail sales are expected to rise. Data on Thursday showed that China's net gold imports from Hong Kong rose in August from a three year low in July. Moreover, imports are expected to remain high due to seasonal demand

Apart from this , one interesting trend that we witnessed was the rising demand for gold from India. After nearly 5 months, we saw some positive news coming from the bullion markets in India as buyers appear to be taking advantage of the relatively low gold prices. Gold demand has picked up across the country, according to traders, despite it being the `shradh' period, which many in India consider inauspicious for buying not just gold, but even other commodities such as cars, there has been some buying reported across retail outlets. As we all know that active market players usually buy at dips. But this time apart from the market player we also saw retail demand for gold rising. 

Russia added to its Gold holdings for a fifth month in a row in August, while Kazakhstan raised its holdings by nearly 800,000 ounces, data from the International Monetary Fund showed on Thursday.

Summing it up, I would like to say that the Middle East is a powder keg that seems likely to explode. The U.S. and western nations have taken a hard stance against an increasingly powerful Russia. This is effecting an already fragile Euro zone and other economies.

Gold has protected wealth throughout history from financial crises and war. We believe it will continue to do so in the coming years.

TRADE RANGE:

METAL	INTERNATIONAL price	DOMESTIC price
GOLD	$1206- $1237 an ounce	Rs.26,000-Rs.27,500 per 10 gm
SILVER	$17.15- $18.00 an ounce	Rs. 38,500 - Rs. 40,000 per kg

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 -

"Investors losing interest in gold over interest rate rise"

http://riddisiddhibullionsltd.blogspot.in/2014/09/investors-losing-interest-in-gold-over.html

BULL V/S BEAR

by Mr. Prithviraj Kothari, MD, RSBL

Over the past few days gold has been playing touch and go with $1300 mark. It has enjoyed a recovery as it moved strongly higher off the $1275 level. In the past week, gold was seen falling sharply at the key level of $1275. In fact, before plunging, gold touched the resistance around $1313. 

The market is now divided into bull versus bear market. There are some who are positive about gold and believe that gold prices will move higher while some believe that it will further enter the bear market. 

Lets justify their views-

BULLISH SENTIMENTS~

Uncertain global environment:

Escalating tensions in eastern Ukraine fuelled safe-haven demand for gold on Thursday, offsetting upbeat U.S. data that would have otherwise pushed the precious metal lower.

The tensions between Russia and Ukraine and militant activity in Iraq are keeping gold from falling back. Certainly people are concerned about the military situation in Ukraine, Syria, and Iraq. There were news that more than 100 Russian soldiers were killed in eastern Ukraine in a single battle this month while helping pro-Russian separatists fight Ukrainian troops.

Rising demand for physical gold:

Moreover, we have seen over the past years that September is one of the best months for gold in terms of physical demand. Over the last 20 years, the yellow metal has seen an average gain of 3% in September.

In India, August marks the onset of the festive season and people buy heavily as September sets in. August 29th has marked the beginning of the festive season with Ganesh Chaturthi and will go on till Diwali. Ahead of this expected demand Indian jewellers and dealers will be stocking up in the coming weeks, so it should affect prices

Along with this, we all see the wedding season setting in and no other metal can replace gold in the so called big fat Indian weddings. Be it jewellery, gifts or any other investment purpose, gold has always been India's first choice. 

Moreover demand from rural areas is also expected to rise as India witnessed a much better monsoon than expected. The majority of India's gold demand comes from rural areas, so the monsoon weighs heavily on purchases.

BEARISH SENTIMENTS~

Strengthening Dollar:

Gold has been pulled the winding down of the US QE program and a probability of rates hike. Probability that the Fed may increase its Fed- Funds rate by mid 2015 will effectively reduce gold price in dollar terms.

US economic development:

This week, important data coming in from US has clearly shown signs of a gradually strengthening economy. The U.S. gross domestic product grew at a revised annualized rate of 4.2% in the second quarter of this year. 

The U.S. Department of Labor said the number of individuals filing for initial jobless benefits in the week ending Aug. 22 declined by 1,000 to 298,000 from the previous week’s revised total of 299,000.

A separate report showed that U.S. pending home sales increased by 3.3% last month, beating expectations for a 0.5% rise. June’s figure was revised to a 1.3% drop from a previously estimated decline of 1.1%

As we all know, any positive data coming in from US has a negative effect in gold prices as gold is pressured by the idea that if the U.S. economy has sustained improvement then the Federal Reserve will start to raise rates, once it ends its quantitative easing program.

Geo-political tensions:

Further there were news that Geo-political tensions seem to have eased out and hence, we saw gold losing its safe haven status and gold prices slipped back below $1300.

Import restrictions:

The lack of any movement to change Indian import restrictions under the new government has also been a disappointment for the gold bulls.

As we see that the market has been divided into two segments: "the bulls and the bears" and as we go through this transition we can expect to see assets outperforming expectations. The market can’t help but exceed expectations since the investors' expectations are so low at this point.

We now see what the market has been awaiting for:

Dates	Data expected
1st September:	The August China NBS manufacturing PMI index and the Euro zone final manufacturing PMI
2nd September:	The U.S. August ISM manufacturing index
3rd September:	The preliminary Q2 GDP of the Euro zone
4th September:	The Bank of England and the ECB interest rates decisions and announcements on 4 September
5th September:	U.S. August non-farm payrolls and the unemployment rate

 

The market will be watching the outcomes of Thursday’s European Central Bank meeting and Friday’s U.S. August nonfarm payrolls report for gold direction. Economists are looking for ECB to take some sort of action, with a cut to interest rates likely.

TRADE RANGE

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1273- $1307 an ounce	Rs. 27,500- Rs. 28,500 per 10 gram
SILVER	$19.15- $19.85 an ounce	Rs. 41,500- Rs. 43,500 per kg

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 - "Uncertainty over Interest Rate Hike!!!"

http://riddisiddhibullionsltd.blogspot.in/2014/08/uncertainty-over-interest-rate-hike.html

INTERESTING TIMES TO COME

by Mr. Prithviraj Kothari, MD, RSBL

Last year was catastrophic for gold as it performed terribly and ended the year at around $1200, almost 28 per cent down. However, in 2014 we saw a decent act from gold as it reached $1380 in March before falling back to $1240 and then, moving up to $1340. Since then gold has been hovering around $1295, approximately 8 percent up. This highlights a good progress for gold but if we compare it to its life time high of $1900 (In September 2011), it's still 32 per cent down from its peak.

Currently, gold looks weak.

• The ongoing political tensions in Ukraine, Iraq, Israel and Syria have been weighed down 
• No major economic reforms announced by the Government of India for Bullion industry
• Chinese demand for gold has slowed down
• sales out of the gold ETFs seem to have reversed to become net purchases (just) so far this year, 
• The Fed has expressed a comfort in the economic growth and a positive recovery.

The market had been awaiting the end of the U.S. Federal Reserve's two-day policy meeting on Wednesday to see if the central bank will raise interest rates faster than expected.These sentiments created nervousness in the market and gold fell on Tuesday. On Wednesday too, gold fell after the Federal Reserve announced a sixth $10 billion cut to its bond-purchases program amid signs that the U.S. economic recovery is gaining traction.

The monthly bond buying programme has been tapered to $25 billion, which if followed will put an end to the purchase program in October.

The Federal Reserve on Wednesday reaffirmed it was in no rush to raise interest rates, even as it upgraded its assessment of the U.S. economy and expressed some comfort that inflation was moving up toward its target. After a two-day meeting, Fed policymakers took note of both faster economic growth and a decline in the unemployment rate, but expressed concern about remaining slack in the labour market

Gross domestic product in the second quarter rose at a 4 percent annualized rate, compared with a revised 2.1 percent drop in the first quarter.

Though, amidst the Middle East and Ukraine tensions, gold has climbed up, but the positive growth reports released on Wednesday, subdued this rise in prices. Now any further disturbing news coming in would push gold prices high as once again the market would run behind this safe haven asset.

The dollar weakened versus major rivals in the wake of the data. Commodities priced in dollars are sensitive to movements in the currency. A stronger dollar can weigh on gold by making it more expensive to users of other currencies, while a weaker dollar can lift the commodity.

Till Thursday gold was down, but on Friday, gold prices spiked, recovering almost half of the weeks 1.8% loss and was seen trading at $1295 an ounce post the US  nonfarm payrolls jobs data release for July, was weaker than expected. This data dampened talks of an early interest rate rise by the Fed and this increased gold's appeal.

The Labor Department said nonfarm payrolls increased 209,000 last month, below economists' expectation of a 233,000 job gain. Unemployment rate also rose to 6.2 percent from 6.1 percent as more people entered the labour market. 

Portugal will spend 4.9 Billion Euros ($6.58 Billion) to rescue its largest listed bank, Banco Espirito Santo, testing the Euro's resilience to another banking crisis.

There isn't much US data this week except the US Non-Manufacturing ISM and the ECB rate decision that could keep the market alive.

Moreover there is a positive outlook for the month as demand from Asia particularly India will pick up as India witnesses the onset of its festive season beginning with Rakshabandhan.

The month of August will be an interesting one as it will give us an indication of which way this market is going. Should it fall significantly then we could be in for a re-test of the June 2013 lows of $1180/oz. 

The presence of tapering and the expectation of interest rate increases cast a dark shadow over the precious metals  making it difficult to predict  just where the momentum for higher prices will come from.

TRADE RANGE

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1275- $1314 an ounce	Rs.27,500- Rs.28,500 per 10 gm
SILVER	$20.15- $21.00 an ounce	Rs.42,000- Rs.45,500 per kg

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 -

"Escalating Tensions....Escalating Prices"

http://riddisiddhibullionsltd.blogspot.in/2014/07/escalating-tensionsescalating-prices.html

PRECIOUS METALS....INDEED PRECIOUS!!!

by Mr. Prithviraj Kothari, MD, RSBL

Ever since I have started my blog, you must have noticed that I first analyse the international markets and then the domestic markets. But since this week was an important and crucial week for gold in Indian market, as it was the newly formed government's first budget since election, I would like to glance through the domestic markets first.

The previous government had over the past two years raised the import tax on gold to 10% from 2% and mandated that 20% of imports had to be re-exported to stem a slide in the value of the rupee and narrow the current-account deficit. There were widespread expectations that some reduction in the import duty would be announced in the Budget. Traders expected at least a 2-4 per cent cut of import tax on gold. Also, some relaxation in the 80:20 scheme that was imposed by the Reserve BANK of India (RBI) last year, was expected.

But traders were left astonished as India's new government left import taxes on gold unchanged in its annual budget. Premium on gold had disappeared in the last two weeks on expectations that the government would relax restrictions on imports as India's current-account deficit more than halved to $32 billion last fiscal year.

After Finance Minister Arun Jaitley concluded his budget speech on Thursday, gold in India climbed $30 above the international price of $1329.50 an ounce. Indian gold futures jumped 2% on Thursday, widening the premium over global prices which had narrowed on the duty cut expectation.

Simultaneously, we saw gold prices zooming in the international markets too. Factors for the same were:

EU Data:  Gold rallied on sliding European equities and a weak euro zone industrial output data. Given the recent weak economic data coming out of the European Union, traders will be closely watching European bond yields, for clues on European investor confidence. The European Union sovereign debt crisis is not that far removed from the market place. 

Chinese Data: Chinese trade data was much below expectations. China’s exports grew by 7.2%, year-on-year, in June, which was below market expectations of a 10% rise

Portugal trouble: There were reports that a major bank or banks in Portugal are in trouble. Europe's stock markets suffered heavy falls on Thursday as troubles at Portugal's largest listed lender, Banco Espirito Santo (BES), sparked fears of a possible return to the dark days of the euro zone debt crisis. Banco Espirito Santo SA sought to calm investors after a parent company missed payment on short-term notes. 

Middle East tensions: Middle East tensions escalated as Israel this week launched a military offensive on the Gaza strip. Heavy fighting too was reported overnight. This once again focused traders attention on the Middle East. At least 78 Palestinians, most of them civilians, have been killed. This situation is a potential time bomb that could further incite unrest in other parts of the Middle East.

Ukraine's fight back: Ukrainian forces regained more ground but sustained further casualties on Thursday in clashes with separatists, while two Western allies urged Russia's Vladimir Putin to exert more pressure on the rebels to find a negotiated end to the conflict. Russia threatened Ukraine on Sunday with "irreversible consequences" after a man was killed by a shell fired across the border from Ukraine, an incident Moscow described in warlike terms as aggression that must be met with a response.

FOMC Meet: The market place has pretty much digested Wednesday afternoon’s FOMC minutes from June. They further stated that the Fed is on track and to end its monthly bond-buying program (quantitative easing) in October. Further there was no specific sign as to when the U.S central bank will start to raise interest rates but there were definitely expectations in the market that it won't take place this year and this sentiment was further reinforced by Wednesdays latest FOMC minutes.

After analyst downgrades of gold that we've all heard over the last year, money is now pouring into the metal at the slightest bit of unease.

The value of the gold funds rose by $5 billion this year as prices rallied 10 percent. The metal has rebounded from last year’s 28 percent plunge that was triggered by muted inflation and as investors shunned the metal in favour of equities. The Hedge funds and money managers increased their bullish bets on Gold by 7,344 lots to 14,272, the highest since March, in the week to July 8. In Silver, they raised their bullish bets by 7,819 contracts to 44,517, a peak since December, according to the data from the Commodity Futures Trading Commission on Friday.

For now, Gold’s performance has proven the bears wrong so far this year. The bulls are being rewarded.

Following the market consensus that had recently emerged, LBMA announce that CME group and Thomson Reuters have been selected to provide the solution for the London Silver Price Mechanism.

TRADE RANGE:

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1324-$1367  per ounce	Rs.28,000-Rs.29,000 per 10gm
SILVER	$20.90- $22.00  per ounce	Rs.45,500- Rs.47,500 per kg

- Previous blog -

"Geopolitical Cover for GOLD"

Link it to: http://www.riddisiddhibullionsltd.blogspot.in/2014/07/geopolitical-cover-for-gold.html

A DREADFUL WEEK FOR GOLD

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

It's been a dreadful week for gold. The yellow metal is down almost 3%, the most in any week since late March. 

I have repeatedly been making a point that gold prices are being pulled by the bullish and bearish factors and it has been moving on a see saw as we get a positive growth report from US on one hand and escalating Ukraine crisis on the other.

Finally the strong resistance of $1280 gave up. On Wednesday, Gold prices fell to a near 4-month low as easing Ukraine crisis paved way in the market. But gold prices bounced off these levels after data showed that the U.S. economy contracted in the 1st quarter for the first time in three years. The US Commerce Department approximated that GDP dropped in the 1st quarter. Economists held severe weather conditions responsible for this. 

On the other hand, the US Labour Department report showed application for jobless benefits declined last week which reduced the safe haven appeal for Gold as the market is now moving their focus to riskier assets like equities that have given better returns than gold in the past year,

At each dip there are more people exiting the markets than entering.

In 2013, we saw gold moving in exorbitant quantities from West to East. Last year China overcame India as the world's top gold importer and gold jewellery and investment demand, rising to a record 1,065.8 tons. Most of that sold gold ended up in China and India and other growing gold consuming nations in Asia led by Vietnam and Indonesia.

But in the first quarter of 2014, that demand tanked. Mainland China's demand for gold fell 18% in the first quarter of the year as investors bought fewer bars and coins, offsetting record demand for jewellery.

India's bars and coins buying also showed a huge drop-off of 54% to 98 tonnes and with jewellery consumption also sliding overall gold demand on the subcontinent slid 26%.

One of the most important ongoing news was about the Major metal exchanges emerged as contenders in developing an alternative to the London silver price benchmark, or "fix", after the century-old system for setting the globally recognized price is disbanded in August. The major exchanges CME and LME both said on Thursday that they were working with LBMA and the precious metals industry to find an electronic-based solution.

Meanwhile, expectations remain high that a strong US economic data report might support the Fed's policy of scaling back its bullion friendly stimulus. 

The market will now be glued to the ECB meeting that will be held next week when the bank might take further steps to ease its monetary policy and enhance growth.

Gold remains 5% to the upside for 2014 but is down $120 an ounce from highs reached mid-March as the rally on the back of safe haven demand and bargain hunting loses steam.

Further for the week gold is expected to be in the range of $1238-$1273 in the international market and Rs.26,000 - Rs.27,800 in the domestic market.

While silver is expected to move in the range of $18.15 - $18.85 and Rs. 38,500- Rs.41,00 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 -

"Gold Investors be Cautious"

-http://www.riddisiddhibullionsltd.blogspot.in/2014/05/gold-investors-be-cautious-mr.html

My view on the closure of London Silver Market Fixing

On 14th May, 2014 the London Silver Market Fixing (the ‘Company’) Limited announced that it will cease to administer the London Silver Fixing with effect from close of business on 14 August 2014. Until then DB, HSBC and the Bank of Nova Scotia will remain members of the Company and the Company will administer the London Silver Fixing and continue to liase with the FCA and other stakeholders.



The LBMA's decision to stop London Silver Market fixing will bring in a lot of hurdles for silver importers in India. Across the world, LBMA prices have always been considered as benchmark prices. The biggest issue will be that there won’t be any benchmark price to look upon. Transparent fair prices will be required for the market to sustain and LBMA will have to choose other alternatives for fixing Silver market prices.