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

Geopolitical cover for GOLD!

                                                        - Mr. Prithviraj Kothari, MD, RSBL

Till 2012, gold was considered as the highest return generating asset in its class. From December 2008 - June 2011 bullion climbed 70 per cent as the Fed bought debt and held borrowing costs near zero percent to spur economic growth after the recession. Prices ended the 12-year bull run last year as inflation remained low and on concern that the U.S. central bank would slow the pace of monetary stimulus.

Lately gold has been abandoned by many as investors seem to be captivated by other assets like equities. The equity market continues to attract money as people expect that the economy will improve further.

Though gold has risen lately, many investors believe that this price rise won't last for long and any easing of the geopolitical tension would bring gold prices down. It was these tensions that gave gold the all needed boost at the beginning of the week. Gold prices jumped 6.1 percent for the month, while recording a gain of 3 percent for the quarter ended June.

Gold was up on Monday and climbed to a three-month high on Tuesday as a softer dollar and escalating violence in Iraq increased the metal's appeal, boosting inflows into the top bullion-backed fund. Spot gold climbed to $1,332.10 an ounce, its highest since March 24 during the trading hours.

Post the release of employment data, gold tumbled as the nonfarm payrolls data was much stronger than expected. This data was released on Thursday as Friday was a holiday. The U.S. Labor Department said the U.S. added 288,000 jobs in June, with the unemployment rate falling to almost a six-year low of 6.1%. The headline figure was sharply above the consensus estimate of slightly more than 200,000 new jobs, while the jobless rate fell 0.2 basis point from last month’s 6.3%.

In addition, the government upwardly revised the May job figure to 224,000 from 217,000 and April job gains to 304,000 from 282,000.Wage gains remained as expected, up 0.2%, and the labour-force participation rate was also flat at 62.8%. US jobs data released Thursday supplied evidence that the country's economy is growing, with the unemployment rate nearing a six-year low.

As U.S. markets were closed in recognition of Independence Day, investors will have to wait until after the holiday long weekend to determine the full impact of Thursday’s much better-than-expected nonfarm payrolls report.

On Friday, gold prices rose as they were reinforced by mixed European shares and tensions in Iraq and Ukraine. But data indicating that the US economy is strengthening may soon reduce demand for the precious metal.

The yellow metal has benefited from its traditional haven status in recent months. However, when geopolitical tensions ease, less-committed investors are sure to exit; and one can expect gold to return to its downward trajectory witnessed since April last year.

Moreover, demand from two of the worlds largest consumers of gold has dampened in the recent months with slowdown in Chinese imports as well as continuing lacklustre performance by India. Customs duty of 10 per cent ad valorem and export obligation (80:20 scheme) have discouraged gold imports into India.

Meanwhile, a Bloomberg report indicated gold shipments into India may have plunged 77 percent in the first half amid government restrictions such as higher taxes on bullion imports.

However Modi’s government has hinted that it will relax some of the restrictions. Loosening those restrictions could help to revive Indian gold demand and further push gold prices higher. The next big event on the domestic front is the First Budget of the new government to go live on 10th July, 2014.

Meanwhile we expect gold and silver to trade in the following prices range:

METAL	INTERNATIONAL	DOMESTIC - RSBL BENCHMARK PRICE
GOLD	$1291 - $1345  an ounce	INR 27,500 - INR 29,500  per 10 gm
SILVER	$20.20 - $22.00  an ounce	INR 43,000 - INR 47,500  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 - "Halfway through 2014...But where is gold heading for??"

http://www.riddisiddhibullionsltd.blogspot.in/2014/06/half-way-through-2014but-where-is-gold.html

Iraq to Ukraine - Safe haven boost!

- by Mr. Prithviraj Kothari, MD, RSBL

All that was written about Gold about the next downfall, proved incorrect till date. Safe haven buying returned lying a Torpedo which took out all the possible resistance levels. Silver proved that it is always the best ally of Gold and moved at a much faster pace than Gold.

Gold saw a very good recovery internationally and in the domestic markets last week. The main reason behind this upward movement of gold and silver prices was the ongoing Geo political crisis in Iraq and Ukraine. Gold has always been considered as a safe haven assets in times of crisis. Moreover, the equities market have been trading near record levels and have reached a saturation point. 

On Tuesday, we saw the economic data coming in from US. Though the crisis in the Middle East was escalating, the attention was towards the two day policy meeting of the Fed where it was expected to further taper US bond purchases. Gold edged lower on Tuesday, backing away from the previous session's three-week highs as a stronger dollar and possible thawing of Middle East-West tensions quelled appetite for safe-haven assets. Consumer prices reading were high which further raised the belief that the Federal Reserve was headed for more monetary tightening and it so did by announcing a further $ 10 billion reduction in QE3 programme.

There was no rush to hedge in the precious metal either after weaker U.S. home construction numbers for May indicated a softer economy in general. The Fed cut its U.S. growth forecast for 2014 from 2.9 percent to a range of between 2.1 percent and 2.3 percent, but it also expressed confidence that the U.S. economic recovery was on track.

As the Federal Reserve showed lack of commitment to lift interest rates and as the tensions in the Middle East continued to escalate, we saw gold surging over 3 per cent on Thursday. This gain has been its best in the past eight months.

Bullion hit its highest level in more than two months. Silver jumped as much as 5 percent, while platinum and palladium also climbed as new hurdles emerged to settling South Africa's mining strike.  

Gold edged lower on Friday as investors took profits after it posted its biggest daily rise in nine months, but was still set for its biggest weekly gain in four months due to conflict in Iraq and a softer dollar after the Federal Reserve's comments. 

As we all know, The key factor that has driven gold prices high is the current Middle East crisis and the Ukraine crises. Militants have routed Baghdad's army and seized the north of the country in the past week, threatening to dismember Iraq and unleash all-out sectarian warfare with no regard for national borders. U.S. and Iranian officials discussed the crisis in Iraq on the sidelines of separate negotiations about the Iranian nuclear programme in Vienna. The news says US President is sending as many as 300 US military advisers to assist the Iraqi Army. 

Fighting flared between Ukraine and pro-Moscow separatist forces, further straining a unilateral ceasefire declared by Ukraine as Russian president Vladimir Putin pressed Kiev to talk to the rebels. When gold is driven by geopolitical news, there's a tendency that this has to keep getting worse for gold to improve.

Moreover there are few data releases from US which the market players believe will be positive and prompt the USD to appreciate. Looking at the above scenario we might see gold prices may though initially rise which eventually likely to turn down. 

There is a possibility that the euro currency may also continue to depreciate which basically ECB wants so as to manage inflation and economic growth in the country. So any further decline in the euro currency might prompt USD to advance and by which may cap gold’s upmove.

These sorts of news are enough to shudder the market up and down. On a technical note, earlier I felt that the resistance near $1285 breaching which it might fuel to $1300 mark. Now the same levels would act as key support regions in short-term. 

Gold has gained momentum much more than expected and may not rise substantially in the coming week as the overall trend remains down till the world economies are improving due to unprecedented stimulus packages offered by central banks across the work to support their currencies. 

To top that I also feel that gold prices in the domestic market will get further support out of a minor depreciation of the rupee. hence I think buying on dips would be advised.

Gold is expected to range between $1277 - $1340 in the international market and Rs.27,500 - Rs.29,500 in the domestic market.

While silver is expected to range between $20.00 - $21.30 and Rs.43,500- Rs.47,000 in the international and domestic markets respectively.

  

- Previous blog -

"Safe Haven Buying Returns- Gold in Picture"

http://riddisiddhibullionsltd.blogspot.in/2014/06/safe-haven-buying-returns-gold-in.html

Safe haven buying returns: Gold in picture!

          - by Mr. Prithviraj Kothari, MD, RSBL

As the week ended, Gold once again became the centre of attraction in the commodities market.  

Bullion metals rallied on Thursday. Gold was at a three week high on Thursday, sustained by safe haven buying following outbreak of violence in Iraq and disappointing economic news out of the US. Last month it was Ukraine, this month it’s Iraq.

Iraq was once again the topic of discussion as civil war has broken out in that country amid escalating violence. Crude oil prices were sharply higher on Thursday, mostly on the Iraq news. The bigger worry is that the violence in Iraq could spread to other Arab countries. Insurgents linked to al-Qaeda seized northern cities of Mosul and Tikrit on Wednesday. Post this, gold and silver prices shot up due to their safe-haven appeal. The U.S. said that it is working with Iraq's leaders on a coordinated response to regain lost territory and would provide additional assistance to Baghdad. 

Along with this crisis, came in a report from the US that was not as per expectations. US unemployment claims and retail sales came in below expectations, giving investors an excuse to sell equities with sentiment relatively risk averse were also friendly for the gold market.

Claims increased by 4,000 to 317,000. That was roughly in-line with the consensus estimate, which was pegged at 315,000. Total retail sales for May increased 0.3%. Excluding autos, they were up 0.1%. Those results were below the consensus estimates, which called for increases of 0.7% and 0.4%, respectively. Separately, April business inventories rose 0.6%, while the consensus expected an uptick of 0.4%. This followed the prior month's unrevised increase of 0.4%. In other overnight news, industrial production in the European Union rose 0.8% in April from March and was up 1.4% year-on-year. The increase was a bit larger than forecast.

India's monsoon season is off to a slow start, and this could have implications for gold should it continue. A lack of rainfall would have a detrimental effect upon the wealth of Indian farmers, which in turn could inhibit the ability to buy gold in one of the world’s key gold consuming nation

In 2013, gold has entered the bear market after a long period of time. This tremendous dip in prices, led to a huge demand for gold in Asia. in April 2013 Asian demand came in, in tremendous force and drained the gold market of all of that tonnage from U.S. sellers of gold taking out a total from the developed world, over the entire year of 2013 around 1,188 tonnes of gold, refining it to 1 Kg bars in Switzerland before shipping it into Asian markets, particularly that of China. The gold price was halted in its fall at $1,280 making a double bottom at that price later in the year.

Now we see more than one reason for gold prices to move even further-

1. Demand for gold from China remains robust with an annualized +2100 tonnes (approx.) set to being withdrawn from the Shanghai Gold Exchange in 2014. While this is less than the amount seen on 2013 it is sufficient to buoy the gold price at current levels
2. The pricing power of the U.S. gold market that came with the 1,280 tonnes of gold has been used up. With the U.S. accounting for only 7.35% of global gold demand, the U.S. markets would have to rely on the influence of the derivatives market of COMEX.
3. Gold is currently trading at $1280 and on the lower side it has a good support at $1210. So gold is more vulnerable to shoot up from here,
4. Indian demand could reignite on the easing of gold import restrictions that severely curtailed Indian gold demand since August last year. The new ruling party is expected to review these restrictions in the budget in the next week or so.
5. Geo-political tensions will play a key role as they have been doing over the years.

As Gold inches up, so will the Silver do! But Silver from a fundamental perspective of it being used in Industries will give it a boost as the economy shows sign of improvement. Moreover with the depreciation of rupee, Gold is expected to move upto the levels of USD 1300 and in India terms INR 28500 to 29000. 

Finally, one of the most awaited Headline: Platinum strike deal reached ‘in principle’. An agreement in principle has been reached between platinum producers and trade union AMCU, the companies said on Thursday. “AMCU will be discussing these in principle undertakings with its members to seek a mandate to accept the offers which, if given, will bring to an end the 21-week-long strike,” the platinum producers’ spokeswoman Charmane Russell said in a statement. Platinum lost 40 USD and traded down to a low of 1436.

USD may be under some downside pressure ahead of the US CPI also due tomorrow. The marquee event of the week has to be the FOMC decision due on Wednesday where the Fed is expected to leave its tapering course intact which will bring down the monthly asset purchase to $35 billion with the end date still likely to be October according to Fed Fisher. Traders will keep a close eye on the updated economic forecast which may be a tad more upbeat than previously which will help to give the USD a prop. Fed Chief Yellen's conference will also be closely eyed.

I expect gold to be in the range of $1265- $1305 and INR 26,800 – INR 28,500 in the international and domestic markets respectively.

On the other hand silver is expected to move in the range of $18.75- $20.10 and INR 40,100 - INR 45,000 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 -

"GLOBAL MANTRA- "JUST WAIT AND WATCH!"

http://www.riddisiddhibullionsltd.blogspot.in/2014/06/global-mantra-just-wait-and-watch.html