RSBL: Yemen's push while Fed's Caution

                                                                By Mr. Prithviraj Kothari,MD,RSBL

We have seen quite interesting movements in gold over the past fortnight. In fact the price of gold has been on a rally over the last one week, rising from well below $1150 to the current level of about $1205. Based on recent trend, the price of the yellow metal is currently testing a major resistance zone of $1200 to $1220.

Undoubtedly, Yemen's turbulence had to play a major part in this up-move. Gold was rocketed towards a break out of USD $1220 that acts to be its key resistance. Silver did follow Gold up-move and touched a high of USD $17.41. Initial air strikes by Saudi Arabia caused a spike in oil prices and other commodities edged higher.

The current volatility in gold has been mainly due the recent comment by Fed Chair Janet Yellen that the policy makers won’t be rushing on rate hike. The Fed has kept its benchmark rate at a record low near zero for more than six years.

Some of the important statements released by Federal Reserve Chair Janet Yellen were-

• She said Friday that continued improvement in the U.S. economy means an increase in the Fed's key interest rate could come later this year but at the same time she stated that any rate increases would happen gradually.
• Yellen said Japan's experience over the past 20 years argues for a cautious approach.
• She stated that main reason for this gradualist approach is that the risk of raising them quickly is much higher than doing so gradually. Tightening the loan rates could stall the economy. Which will again have its own side effects.
• Both Yellen and Fischer stressed the Fed's expectation that rate hikes would be gradual and that the Fed's action would depend on how the economy performs in coming months.

Next week markets continue to look volatile for gold as the market will react to data in anticipation of potential Federal Reserve rate hikes and Saudi strikes in Yemen. 

Gold prices have a more bearish outlook. Reasons being:

• The U.S economic data have so far continued to impress and another positive commentary would subsequently end the recent rally in the price of gold. A stronger than expected US PMI data and some hawkish comments from Feds Lockhart did take some shine out of the rally. Even the unemployment claims filed by US citizens have fell more than expectations creating a sign of stonf fundamental growth.
• Weakening demand for gold from China and India poses several challenges for the yellow metal to reach its January highs. China's gold imports from Hong Kong fell to their lowest in six months in february, data showed on Thursday. Whereas the sudden jump in prices have dampened demand in Indian markets.
• SPDR Gold trust has continued to see outflow in-spite of the ongoing rally, where it reported that the holdings fell by nearly 6 tonnes to 737.24 tonnes on Thursday, the lowest since January.

If anything, the recent rally is a magnificent reward to gold bulls, especially considering the overall market bias, and hence some would be looking to cash in at the current level which would again put more pressure on the price. This would shift focus from gold to US equities and the USD thus pressuring gold prices to fall further.

But the ones who believe that the market is bullish for gold have their own justifications. They believe that a long with uncertainty in the Middle East, Greece’s negotiations could also create a safe-haven bid for gold next week.

The bottom line is that the recent rally in the price of gold lacks enough catalysts to sustain it towards levels seen in late January. In fact, based on recent events, a lot more could count against a continuous rally thereby signaling an end to the current run.

TRADE RANGE:

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1185-$1230 an ounce	Rs.26,000- Rs.27,500 per 10gm
SILVER	$16.40-$18.00 an ounce	Rs.37,600- Rs.40,000 per kg

 

INVESTMENT MANTRA: 
Buy on corrections and keep investing systematically every month. You may take the services of Bullion India for Systematic investment plan.

I feel that Silver will surpass Gold in the future. The price range between INR 33000 to INR 40000 does serve as a strong appetite for Silver consumption.

“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 -
"An Action Packed Week For Gold"

http://riddisiddhibullionsltd.blogspot.in/2015/03/an-action-packed-week-for-gold.html

AN UPBEAT DOLLAR BEATS UP GOLD

- By Mr. Prithviraj Kothari, MD, RSBL

 

As the outlook for the U.S dollar remained upbeat, we saw a bearish sentiment in the market for gold. Many investors expect that an interest rate hike by the U.S Federal Reserve will come sometime in 2015 was responsible for this sentiment. 

The Fed had stated that before it would tighten its policy, after it sees acceleration in wage growth. But at the same time the Fed had also made it clear in the January minutes in recent weeks that rate hikes could occur even if inflation is floundering. For now, as the Fed doesn’t consider the drop in inflation anything more than transitory, it’s unlikely that the wage figures ruffle too many feathers, at least for the U.S. Dollar.

Apart from the interest rate hike, there is also a great deal of uncertainty about the geopolitical and macroeconomic situation and gold continues to react to development in this regards.
The strong greenback has pushed gold prices below the key psychological level of $1,200 an ounce and has pushed the euro to a 12-year low

Both the euro and gold prices remain under significant pressure from the U.S. dollar.
The U.S. dollar has strengthened, particularly against the euro and that is negative for gold.

Though gold ended down for the week, it did show modest gains on Thursday afternoon although in euro terms it struck a near-one-month high following a speech from ECB president Mario Draghi on the bank’s QE programme.

An optimistic Draghi today outlined the ECB’s bond-purchasing plan that will begin on March 9. But he set a floor for bond purchases at the ECB’s deposit rate of -0.2 percent, following questions regarding to the extent to which the central bank will dabble with negative-yielding bonds.

As the week ended, gold prices fell to a two month low on Friday following a strong U.S non-farm payrolls report. Details are as following-

• US total non-farm payroll employment increased by 295,000 in February and the unemployment rate edged down to 5.5 percent from 5.7 percent, which was significantly better than the forecast for the addition of 240,000 jobs and a 5.6-percent unemployment rate.
• Labor reports over the next several months will take on added significance because the Federal Reserve is on the verge of raising interest rates.

This reading put added pressure on the Federal Reserve to raise interest rates in the near term.


By Friday afternoon prices had hit a session low of $1,162.90 an ounce and settled only marginally higher at $1,164.30, down 2.6% for the day. The gold ended the week at its lowest point since Dec. 1, shedding 4% since Monday.
Many cautious investors displayed a large scale pullout, looking for refuge in investment opportunities like stock, assuming bullish prospects for equity markets would continue in emerging markets like India.

Currently investment in equities looks more fruitful. Many investors are seeking shelter under this avenue as it is expected to give better returns than bullion; hence many investors sold their holding in gold to divert funds into equities in markets like India.
The jobs report definitely added fuel to fire for those who are expecting higher interest rates. Gold’s fall today shows that there is faith in the interest rate underpinning the dollar right now.

Strengthening dollar which is trading at its 11 year peak because of optimism in the US economy will be a strong factor for gold prices to come down in this month.

Although most of the market focus will revolve around the U.S. dollar and interest expectations, the two economic reports that will garner investors’ attention are-

•  February retail sales
•  Producer inflation data

The question now on everyone’s mind is just how low gold prices will go next week, in what is a quiet week for U.S. economic data. Most analysts expect that markets will spend most of next week preparing for the Federal Reserve monetary policy meeting on March 18.
Any hike by the Fed, which has kept rates near zero since 2008 to stimulate the U.S. economy, could hurt demand for bullion, a non-interest-bearing asset. If there is no physical demand then the market could be vulnerable.

The current strategy that market players should follow is “BUY ON DIPS”. 

Following trade range could possibly give an idea for the same.

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1130-$1200 an ounce	Rs.25,700- Rs.27,000 per 10gm
SILVER	$15.40-$ 17.00 an ounce	Rs.35,000- Rs.38,000 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 -
"Overall A Decent Budget For Gems & Jewellery Industry"

http://riddisiddhibullionsltd.blogspot.in/2015/02/overall-decent-budget-for-gems.html

LOTS OFTHINGS TO SMILE ABOUT FOR PRECIOUS METALS

                                                                                                      - By Mr. Prithviraj Kothari, MD, RSBL

Though we did see some trading in precious metals on Jan 1st and 2nd, it was the week from 5th-9th Jan that was actually considered the first volatile trading week of 2015.

The main news doing the rounds for the week was from US- minutes of the recent FOMC meeting and the non-farms payroll report.

Apart from the macro reports there were the following financial reports that were out in the week.

• US non-manufacturing PMI, factory orders and trade balance monthly reports.
• Europe, MPC rate
• The EU flash CPI
• Unemployment report,
• GB’s manufacturing PMI
• Germany retail sales
• The French trade balance.
• In China, CPI and trade balance
• And several economic reports from Canada and Australia.

But of all the above mentioned reports, the most influential for gold was the unemployment report.


Gold was seen to have a positive start for the week as it firmed above $1200 an ounce on Tuesday hitting a near three-week high, as tumbling global equities and concerns over Greece's future in the euro zone prompted investors to seek safety in the metal.

The uncertainty behind the euro zone is once again tempting investors to run after gold as a safe haven asset. This risk off sentiment in the markets may help bullion be stable at its recent upswing.

Adding to this we also saw that holding in the world’s largest gold-backed exchange traded fund- the SPDR Gold trust, rose 0.25 per cent to 710.81 tonnes on Monday, though still near a six-year low. But this rise did reflect improving investor sentiments towards gold.

Bullion traded in a ranged manner for most part of the week while volatility was high on Friday. The Greenback jumped on likely positive economic reports from the US coming week whereas speculation increased that Fed might talk about raising interest rates as also anticipated from its monetary policy minutes report due next week and likely putting weight on Bullion.

We have always seen that precious metal markets and the equities markets are inversely related. This week too, we saw precious metals rising while equity market and commodity bellwethers including copper and oil hit fresh multi-year lows. After a disappointing end to 2014 gold is beginning to build a base above $1,200 an ounce – the metal advanced 1.2% to $1,223 an ounce in late trade Friday, the highest since December 11.

Gold's gains since hitting four-year lows early November now top 7% and is made more remarkable by the fact that the advance has come despite a rampant dollar which hit a 12-year high against major currencies yesterday and a Friday jobs report that confirmed that the US economic recovery remains on track.

Though the market players were a lot dependent on the non-farm payrolls report, it did not show much after effect on gold.

The gold price wobbled briefly but was ultimately unaffected by a non-farm payrolls report that, while mostly positive, was not potent enough to shift the Federal Reserve’s rate-rise timeline.

Total non-farm payroll employment rose by 252,000 in December, which beat the 241,000 forecast, while the unemployment rate declined to 5.6 percent, the US Bureau of Labor Statistics reported today.

Additionally, the change in total non-farm payroll employment for October was revised to 261,000 from 243,000 and the change for November was revised to 353,000 from 321,000.
The forthcoming labor reports are expected to create added significance as there are expectations that the Federal Reserve in on the verge of raising interest rates. The current market consensus is that rates will rise in mid-2015 although this is a moving target that will be dictated by jobs and inflation data.

As said earlier, too gold is one such commodity which takes price direction from macro developments rather than its own demand-supply wherein we feel downside risks for the commodity may stay in the near future



- Previous blog - "An Impressive start For Gold In 2015 But A Dull End"
http://riddisiddhibullionsltd.blogspot.in/2015/01/an-impressive-start-for-gold-in-2105.html

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