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

OUR LOVE FOR GOLD

                                                     - by Mr. Prithviraj Kothari, MD, RSBL

Gold is the world's favourite metal and being an Indian, I have always been brought up with the principle that gold is one such metal the "HAS" to be a part of regular investments.

Gold in one such unique asset in its class, that  enjoys a diverse set of loyal buyers. In fact, I wouldn't be wrong, if I Say that gold has a huge fan following.

• In the west, investors want to spread their risk.
• In 2013, demand for gold from India hit record levels. and the crash in April saw humongous number of buyers stepping into the market to take advantage of this crash. The situation went so out of control that the government brought down the shutters, hiking import duty to 10% and imposing the “80/20 rule” which forces dealers to re-export 20% of any new shipment before taking delivery.
• Meanwhile, China’s gold demand meantime rose faster, finally overtaking the world No.1 and swallowing well over 1,160 tonnes of imports, even while topping the league table of gold mining nations with a further 440 tonnes.

Though the gold fan club is always widening, last year it saw many betrayers.

• It was in April, 2013 that gold had crashed following Cyprus bailout.
• It had been downgraded by many and abandoned too, last year.
• Gold that has always stood proud in its category, for the first time in 13 years; it gave negative returns in 2013. Moreover, it headed for an annual drop of 30 percent. Since reaching a record high at $1,910 an ounce in 2011, it collapsed to a low of $1195 nearly 37% of its value.

And its April 2014, that gold has performed exceptionally well compared to its counterpart. Gold held around 2-1/2-week highs on Friday, heading for its biggest weekly gain in a month on sagging risk appetite and increasing hopes the U.S. Federal Reserve will hold off on raising interest rates as soon as early next year.

Meanwhile, US Secretary of State John Kerry’s commented that if Russia would intervene further in Ukraine then it would target Russia's energy, banking and mining industry. I feel Ukraine story is far from done!

The highly anticipated FOMC minutes were released and markets seemed to be looking for a hint that would have confirmed Janet Yellen’s latest comment from after the March FED meeting, when she made clear that “a considerable time” means about 6 months and that means a rate hike could come as soon as early 2015. But that statement was missing in the minutes. US yields traded lower, stocks jumped up, the US Dollar lost against the board and metal prices continued to rise.

In spite of Janet Yellen making it clear time and again that; decisions will be based on economic reading, I find it crazy that traders are still reacting to potential changes in QE taper and interest rate increases.

Gold continues to roll along in an uncertain market with no clear direction in which assets are moving: US equities, US dollar and the possibility of interest rate hike this year.

Some of the remarkable figures coming in from Asia and other countries were-

DUBAI

In 2013, the value of physical gold traded through Dubai surged to $75 billion compared to $6 billion in 2003, and $70 billion in 2012.  volumes accounted for 40 per cent of the total worldwide trade in 2013. This reinforced Dubai's position as the global gold and precious metals trade hub as stated by Ahmed bin Sulayem, Executive Chairman of Dubai Multi Commodities Centre (DMCC),

CHINA

China saw its gold output increase by 10.6% year on year to 63.2 tons in the first two months of this year, according to statistics released by China Ministry of Industry and Information Technology. In the first two months of this year, gold mines in the country produced 51.7 tons of gold, 10.4% more than in the same period of 2013

INDIA

Gold imports in India are on a recovery mode now, as March imports have been mooted to have doubled to 50t m/m. The decision to permit 5 more private banks to import gold led to this recovery. In fact as the auspicious occasion of Akshaya Tritya is approaching, we see the demand to surge even higher and thus the import figures are expected to rise too.

Keeping the current market trends and price drivers in mind, gold is expected to trade in the range of $1293-$1350 an ounce in the international market and Rs.29,000- Rs.31000 per 10 gram in the domestic market.

On the other hand silver is expected to move in the range of $19.50-$20.55 and Rs.42,000- Rs.46,000 per kg in the international and domestic markets respectively.

Reiterating, I feel buying physical Gold, Silver and Platinum should be on cost averaging basis. It has been a successful strategy since the bull year began, though it would be a bit strange for the investors who started investing in the last couple of years.  I am sure Gold or for that matter any precious metal investments would always give best returns if considered as long term investment options and something that you can bank on in financial instabilities.

The primary purpose of this article by Mr. Prithviraj Kothari is to educate the masses of the current happenings in the Bullion world.

- Previous article-

"Bad News Proves to Be Good For Gold"

http://www.riddisiddhibullionsltd.blogspot.in/2014/04/bad-news-proves-to-be-good-for-gold.html

Is it the right time to buy Gold, Silver & Platinum?

No doubt this had to be the blog for the week. Precious metal prices have been rocketing down for the entire week.

Let’s first focus on the reasons for the price fall:

1.    FED’s QE3 is being unwound at a steady pace. Tracking the improving US economic conditions, FED might even increase the pace of tapering.  QE was responsible to set record highs for gold and the same is the reason for its downfall in 2013.

2.    Ukraine turmoil had given the much necessary support to safe haven buying assets like Gold where the prices were on an upward spiral. As the turmoil continues to unwind itself and most of the news being discounted by the market participants, the support is slowly fading away.

3.    Physical demand is a concern. Bloomberg had reported that Iraq had increased their Gold reserves by a massive 36 tons in March and IMF data showed that Turkey was back increasing their Gold reserves by 9.3 tons in February. Hong Kong Trade Statistics showed a strong month of Chinese Gold imports for February, which were a net of 109.2 tons, which was 30% more than January and 80% more than the previous year. When I had seen these stats, I did feel that the physical demand is holding strong to support the Gold price fall. But frankly, Turkey or Iraq aren’t the main supporters for Gold. Undoubtedly it has been the show of Asian countries and majorly China. Now to track Chinese physical demand, I take support of SGE premiums. When the prices fall, SGE premium is the first one to go up, while that has not been the case lately. SGE premiums have been locked in a negative territory or hardly minutely up despite Gold price fall from $1390 to $1290 in a span of 2 weeks or so. Due to this I feel that once March data is released, it is likely to show a decline in imports relative to February numbers as SGE premiums were in positive range for most of the time in Feb.  With SGE premiums mostly in negative to hardly anything, it would have been less attractive to import metal. Even the But as the economic uncertainties increasingly looming over Chinese banking sector through shadow banking issues, I feel their physical purchases would dampen a bit.

4.    On the domestic front, Gold and Silver prices are dropping faster than its dollar denominated counterparts. Rupee has appreciated considerably when compared to dollar over the past few weeks. This has led to downfall in gold prices. Indian government and RBI had to take tough decisions over the past year and now the results are paying off. With the CAD in control, Indian economy is looking to improve from here on. Due to which investors are regaining their faith in India and investments are gradually increasing.

5.    Silver prices are more or less dragged along with Gold prices. With regards to platinum, the AMCU does not seem to be willing to accept less than double salaries, as it announced it would give Platinum producers one year extra time to adjust the wages and would only then return to work

My take on Gold prices in dollar terms will be in the range of $1180-$1400 i.e. INR 26500 to INR 32500. I feel this is the range that the investor should keep in mind while buying Gold.

My take on Silver prices in dollar terms will be in the range of $18.50-$23.50 i.e. INR 41000 to INR 47000. I feel this is the range that the investor should keep in mind while buying Silver.

Like others I do feel that if overall the economy improves than the downward journey for precious metals will continue. But like others, I feel the below given reasons will always play a crucial role in providing returns to the investors who trust on Gold and other precious metals.

1.    With the upcoming elections in India and CAD in control, I do expect that the new government will surely take some steps to boost the R&D for mining Gold in India as well as provide some relaxations in Gold import policies. If that happens, Asian demand will get a boost from India. But government policies will play a key role as they know the best when it is about deciding the best for Indian economy.

2.    As the prices head lower, I am sure that the physical demand will improve drastically world over and not only China because everyone knows that Gold is the only asset that can be taken into account during any economic turmoil.

3.    Gold will always play an important role in geopolitical conflict situations and economic uncertainties.

4.    As the prices continue to spiral down, mining industry will face hurdles to operate in low margin or no margin environments. If that is taken into consideration, I feel that their operational costs will rise more than the income they generate from mining creating the necessary closure of mines as it will be difficult to stay in business in such conditions.

5.    Silver and Platinum continue their downfall as they are more or less dragged along with gold prices. But as the economy improves their use in industries across the world will continue to rise and in turn increase their demand and prices.

6.    The bubbles created by money printing and market manipulation - not just in the U.S., but the entire world has never been universally unbacked, nor government intervention so widespread. This has not been seen over the years and the stimulus programmes have led to gigantic balance sheets of central of banks of the world under the word: “Economic Development”

Gold has always stood by one and all when it comes to economic uncertainties. But with Central banks and governments trying their best to revive their economies, Gold is loosing its investment appeal to some extent, as investors look for short term benefits.

I feel buying physical Gold, Silver and Platinum should be on cost averaging basis. It has been a successful strategy since the bull year began, though it would be a bit strange for the investors who started investing in the last couple of years.  I am sure Gold or for that matter any precious metal investments would always give best returns if considered as long term investment options and something that you can bank on in financial instabilities.

The primary purpose of this blog (Prithviraj Kothari's view on Bullion Markets- MD,RSBL (Riddisiddhi Bullions Ltd.)) is to educate the masses of the current happenings in the Bullion world.

- Previous blog - "GOLD GOES ON A BUMPY RIDE"
http://riddisiddhibullionsltd.blogspot.in/2014/03/gold-goes-on-bumpy-ride.html

LET'S GET GOLD !!

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

Look in to the past- it was Feb 2013....Look in to the present- it is Feb 2014- Gold has risen 11 % since the beginning of the year....

Gold has shown some remarkable performances Since Jan-

1) Gold is up over 10 per cent since the 2013 closing lows

2)Gold crossed the $1300 mark for first time in over a year

3) The $1300 mark cross over has made gold reach a three month high in the week

4) this three month high posted its biggest weekly gains since October 2013.

Just "a" particular cause cannot be held responsible for this-

- Weak US economic data

- Deteriorating weather conditions in the US

- Political uncertainty in the Euro Zone

- SDPR posting its biggest inflow since December 2013

- Rising demand for gold from China

All of the above mentioned reasons are somewhere, directly or indirectly responsible for the rally in gold prices.

By the end of the week gold received a good booster by the weak US economic data release. The report shows that U.S. retail sales fell unpredictably in January. U.S*retail sales fell 0.4% in January*

Adding to it, more Americans filed for jobless benefits last week. Initial weekly jobless claims rose by 8,000 to 339,000, missing forecasts for a decline to 330,000.

The ICE dollar index, which tracks the greenback against six other currencies,declined to 80.308 from 80.718 late Wednesday. 

In all, the entire scenario gave a good push to gold prices. This weak economic development has once again raised questions over whether the world's biggest economy can sustain growth and made some investors hope the Fed would take a slower approach to tapering its bond purchases.

The disappointing U.S retail sales data weighed on the dollar, increasing the appeal for bullion, prices of which were sustained by the weak data releases from US as it reinforced the investors that Fed will take a slower approach to tapering its bond purchases.

Furthermore, extremely cold and unfavourable and unseasonable snowy conditions in US have hit the retails sales which has always been considered as a parameter to determine consumer spending. deteriorating conditions have also been a reason for a drop in sales.

Large parts of the United States have been gripped by freezing temperatures and snow storms, which caused investors to largely discount both the day's and other recent weak data that suggested the economy started the year on weaker footing.

shares in Europe dipped, as Italy was affected by the prevailing uncertainty  that raised worries about efforts to turn around Italy's sputtering economy.

However hopes once again prevailed as the way was left open for center left leader Matteo Renzi to take over, once Italian Prime Minister Enrico Letta would tender his resignation.

Additionally, SPDR- world's largest gold backed exchange traded fund, posted its biggest inflow since late December 2013. Holdings rose 7.50 tonnes to 806.35 tonnes on Thursday,

 This further strengthened investors sentiments.

While in China, consumer demand has always been rising and it has now overtaken India as the largest bullion consumer as it topped 1000 tonnes for the first time in 2013.

In the physical markets, bullion was also underpinned after India's trade ministry said it has recommended easing curbs on gold imports, after a 77 percent drop in imports for January that helped narrow the country's trade deficit.

During times of economic turmoil, gold has always enjoyed the status of a safe haven asset and has always had an inverse relation with equities.

But an interesting fact to be noted was that as gold performed well, equities too were on a rise.

Indeed the recovery in the gold price has coincided with a 0.5-percentage-point increase in the U.S. equity risk premium and a decline in U.S. real yields. This has been a favourable atmosphere for gold prices to rise.

Other precious metals are on the rise with Palladium up for the 8th day in a row (the longest streak since July), Platinum up 6 days in a row (long since July) and Silver up 10 days in a row breaking $20.50.

Gold’s gains in 2014 have been helped by soft U.S. economic data and emerging-market stress, but the metal’s strength may not last once economic data improve again.

The underlying notion that central banks are slowing down their quantitative easing is boosting gold's appeal as an inflation hedge and alternative currency. 

    

Speculation that the Fed might hold off further reduction of stimulus had strongly supported gold by keeping interest rates at rock bottom while stoking inflation fears. 

There is no surety of how well and for how long will these gold prices be sustained. A we head towards March, weather conditions in US tend to improve and can once again boos consumer spending. the rapid rebound in the S&P 500 over the past week would suggest that the sources of support for the gold price from a rising equity risk premium may be coming to an end. 

Now we wait for March or rather lets march towards March !!

The primary purpose of this blog (Prithviraj Kothari's view on Bullion Markets- MD,RSBL (Riddisiddhi Bullions Ltd.)) is to educate the masses of the current happenings in the Bullion world.

- Previous blog -  "Is the golden egg about to hatch??"

http://riddisiddhibullionsltd.blogspot.in/2014/02/is-golden-egg-about-to-hatch.html

GOLD-PAST PERFORMANCE, PRESENT PRICES & POTENTIAL PREDICTIONS

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

Gold acted like a new born baby this year. It showed new movements and new trends which were quite difficult to understand, analyze and justify. But this baby though adopted by many was also abandoned by a handful chunk of people.

Gold that has always stood proud in its category, for the first time in 13 years, it gave negative returns. Moreover, it’s headed for an annual drop of 25 percent. Gold has been in a significant bear market since reaching a record high at $1,910 an ounce in 2011. On April 15, the gold price plunged about 9%—the biggest one-day loss ever for the yellow metal.  In its collapse gold bullion lost $705 an ounce or 37% of its value to the recent low at $1,195. Some say the no. '13’ as considered unlucky by many; has proved to be inauspicious for gold too.  

The international markets witnessed the following highlights in the year 2013 that were responsible for volatile movement of bullion prices.

• Cyprus Bailout
• Syrian Conflict 
• Statement by FED that it may taper its bond buying program by late 2013
• US government shutdown
• US debt ceiling being raised

Throughout the 1st quarter gold was seen in a range of 1554$ an ounce to 1695$ an ounce. Though gold declined to $1554 in February it managed to cross the 1600 mark in March - Thanks to Cyprus. The Cyprus crisis had offered gold a helping hand, after investors had been pulling out of the precious metal 

On the other hand, the Indian government hiked duty on gold to 6 per cent from 4 per cent to rectify the current account deficit on January 21, 2013. Gold also saw a booster coming in from US lawmakers that were successful in averting the fiscal cliff at the 12th hour, this too pushed up gold prices.

On Friday, 12th April, Gold witnessed a record drop and for the first time in history it crashed 80 dollars in a single trading day this reaching $1484. Panic selling had triggered this downfall.

Some 158,200 taels of gold bullion (roughly six tonnes) were sold in six auctions held by the State Bank of Vietnam. There was news that as soon as the international markets opened, Merryl Lynch sold 4 million ounces of gold.

Heavy ETF selling was also seen in the markets.Gold dropped further trading at 1385$ at one point of time.Till mid June gold managed to be above the $1400 mark but news about the recovery of the US economy dropped gold prices and it was seen trading at around 1385$.

During mid July the FOMC minutes reviewed that many Fed governors would like to see more signs of improvement in jobs before agreeing to taper.

What came as a turning point for gold was the civil war at Syria. Gold prices rallied above $1430. Meanwhile, in South Africa the National Union of Mineworkers (NUM) has given 48 hours' notice of a strike at South Africa's gold producers. This too affected gold prices.

While in the domestic market, the Indian rupee slipped for the third consecutive day in a row on Wednesday to close at a fresh record low of 68.80 per dollar, as uncertainty over a possible US-led military strike against Syria knocked down Asian equity markets and currencies. This was the biggest ever single day fall for the currency since 1995. But then in September, stepped in Mr. Raghuram Rajan- he was then considered the savior of the depreciating rupee.

The FOMC meet began on 18th September and was over by the 19th. All expectations, rumors, speculations and predictions were finally put to a halt. 

Just when India marked the onset of its festive season, the US was heading for a partial shutdown. Though the partial shutdown did not create much impact on gold prices globally, this shutdown along with the debt ceiling will surely have a major impact on bullion prices worldwide. As shutdown entered its second week, there prevailed a lot of uncertainty in the markets.

Finally, in the first week of November, just after Halloween, the Fed stated that it would not taper its bind buying right away as it needs concrete evidence over US economy's growth. Though this should have pushed up the gold prices, completely opposite happened. Gold was down 6.1% in November, the worst performance since June when prices touched a 34-month low of 1180.5$

U.S. Senate leaders finally announce a deal to end a political crisis that had partially shut down the federal government and brought the world's biggest economy close to a debt default that could have threatened global financial calamity. The deal, however, offered only a temporary fix and does not resolve the fundamental issues of spending and deficits.

But what came in as a silver lining in the dark clouds for gold was the demand for gold from China. It finally overtook India as the largest consumer for gold as it imported 131 tonnes of gold in October through Hong Kong.

It is rather the month of December that was considered a deciding factor for gold's fate as the most awaited and much discussed FED meeting concluded on 18th. It is in this meeting that the Fed was supposed to give a final decision as to when the tapering would begin for the final time in 2013. Though many investors believed that tapering would take place in early 2014, The Fed had a surprise package for all. It probably accommodated a bit everyone for Christmas, by announcing a somehow symbolic $10 billion taper to start in January, target to end QE around the end of 2014, but on the other hand promising to keep low rates for a well past time until the unemployment rate would drop below 6.5%. Gold quickly fell to 1215.80, while the S&P 500 rallied close to the all-time high. Gold in the Indian market dropped Rs.1000 per 10 gram late in the evening. The total Gold ETF holdings are currently 57.41 Moz compared to 86.62 Moz at the start of 2013. Total gold ETF holdings are now back at the lowest level since Novemeber, 2013. 

The tapering news got along with it a firm belief that the Global economic scenario is improving and we will near the end of recession soon.

Conclusion

Gold has lost its appeal as a safe haven asset. But yes, the market is still divided into two segments. Some who have abandoned gold like the net outflows of ETFs while others who have adopted it with the belief that gold prices will rise and the metal will always serve with a safe haven appeal like the central banks of the world. 

I feel, Gold should not be always thought as a short term profit making option, rather it should be thought in terms of grams that would safeguard your future. I always remember my great grandfather saying "don't buy gold to make profits...buy gold because its eternal....it's pure wealth and its enduring and come what may-  GOLD WILL ALWAYS STAND BY YOUR SIDE:- This feeling has sunk in so well not only with me but I guess with entire India.

And that's the reason that gold has always been the favorite metal for Indians.

PREDICTIONS 2014

By now everyone would believe hat 2013 has been one of the worst years for gold.

If we take a look at gold's performance over the past decades we see that gold has given highest returns compared to any other asset in its class. I would advise investors, to have patience and just follow one mantra "Buy on Dips"

It's quite difficult to predict gold prices. A trade range can though be noted down. There are a lot of factors that are involved in the making and breaking of gold prices. These factors influence the price of gold and gold is directly or indirectly dependent on them. What we assume that in case there is another eruption of a financial crisis or any new geo political crisis, gold prices may break new highs and continue to rise strongly as a result of the supposed function of gold as a safe haven.

Following will be the key factors that will be responsible for the movement of gold prices in 2014.

• US Debt ceiling
• QE tapering
• Demand for gold from China
• Union Budget 2014 (for the domestic market)
• Finance ministry directives (for the domestic market)
• Mining companies 
• Interest rates
• US economic data

Gold is still at the mercy of the dollar. What this means is as volatile as it is with the Fed’s back-and-forth on the possible taper, gold will continue to play off what the dollar does into 2014.

The average base price for gold in 2014 is expected to be 1375$ an ounce. In the domestic market gold is expected to move in a range of Rs.25,000 - Rs.33,000 per 10 gram and the average base price for the same is expected to be around Rs.28,000. 

The average base price for Silver is expected to be around $25.00. The average base price for silver is the domestic market would be somewhere around Rs.45,000 per kg and the trade range for silver is expected to be Rs.37,000- Rs.55,000 per kg.

The primary purpose of this blog (Prithviraj Kothari's view on Bullion Markets- MD,RSBL (Riddisiddhi Bullions Ltd.)) is to educate the masses of the current happenings in the Bullion world.

- Previous blog -

"As the year ends does the bull market for gold end too?"

http://www.riddisiddhibullionsltd.blogspot.in/2013/12/as-year-ends-does-bull-market-for-gold.html

ARE THEY REALLY PRECIOUS?

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

This week a lot has happened with precious metals and in the coming week too a lot is bound to happen with gold, silver and platinum

The bears are in the driving seat in Gold. Gold prices shed 5.6 percent for the week. Gold fell to a five-week low on Friday at $1,304.56, heading for its worst week in more than two months.

For the first time in a month silver traded below $22. It suffered a huge sell off on Thursday. Silver prices fell 5.32 per cent on Thursday, closing at $21.90.

Platinum was not sparred from the selling pressure, falling 2.31 percent to close at $1,438 and saw some slight recovery to the $1,440 levels now. 

There are various factors responsible for this Sell - off. Let's take a look at them one by one.

SYRIAN EFFECT:

Gold prices rallied above $1,430 an ounce to a three-and-a-half-month high in late August on safe-haven buying, as the United States and its allies looked set to launch military strikes on Syria.

But the metal’s appeal has been dented by diplomatic efforts to place Syria’s chemical weapons under international control, which may avert a US military strike. The risk mood improved with Syria welcoming a Russian plan to surrender their chemical weapons

Obama has threatened to act alone, if necessary, and his administration credits that threat with Russia's surprise proposal last week to have Syria turn over its chemical weapons arsenal to international control. Outside of the United Nations, however, administration officials insisted they would not take the military threat off the table.

As of now gold doesn't seem to be playing much to the tunes of the Middle East tensions as the UN has clearly not given a go ahead for any attack on Syria.

QE TAPERING EFFECT:

The FOMC meeting to be held on 17-18th September and its speculations over the tapering of the quantitative easing program will be one of the biggest events for the movement.

Since the inception of the Fed’s quantitative easing programme in 2008, gold price has more than doubled from about $837 an ounce in 2008 to reach a peak above $1,900 in 2011. 

Since the Ben Bernanke’s Speech on QE3, prices have saw humungous correction and fell to a low of $1,180 in June this year. 

With talks of possible withdrawal of their liquidity injection programme coming up at the FOMC meeting next week, it is no wonder we see such volatility in bullion prices.

DEMAND EFFECT:

Another factor that affected gold prices was the lacklustre physical gold demand, particularly out of India, one of the biggest importers of Gold, where the Government restrictions to import Gold have further dented the supply. The dramatic trend decline in the Indian Rupee against the US dollar has sharply increased the local price of gold with the gold price measured in Rupee up some 20% since late June. 

The Indian jewellery market, which is a major component of global jewellery demand, has tended to be price sensitive. Thus the high local gold price is likely to dampen Indian jewellery demand and pull down gold prices unless the rupee depreciates further

Although physical demand has picked up in Asian Markets over the past two days, it is not nearly as strong as what we have witnessed in at the start of August. The strong physical demand during August had pushed plenty of shorts out of the market (this short covering assisted in pushing gold above $1,400). Should physical demand improve now, there may not be the same level of short covering to help push gold higher again.

MINING EFFECT:

Furthermore, the trend weakening of the South African Rand and the Australian dollar have lowered gold mining cuts in the two countries with the highest production costs which makes production costs less likely. It is also worth noting that the gold labour strikes in South Africa are now over which will may pull gold prices down

Having discussed these factors, I would expect Gold to trade sideways until FOMC meeting with its stimulus plan can lead to a direction.

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 -

"Gold was pulled between two major forces- Syrain attack and the QE tapering"

http://riddisiddhibullionsltd.blogspot.in/2013/09/gold-was-pulled-between-two-major.html