RATE HIKE HANGOVER CONTINUES ON GOLD: RSBL

 By Mr. Prithviraj Kothari, MD, RSBL

The much awaited suspense over the Fed’s September interest rate hike was finally put to an end. It did create much volatility in the market and bought in some good news for gold.

Gold prices finished the week on a three day rally as the Federal Reserve’s sudden concern over emerging market growth boosted safe-haven demand.

The volatility was like a storm for gold and it tried to be holding on to the gains.

Thursday was a crucial day for gold as all eyes were focused on the FOMC meet that was due to release its monetary policy. 

Fed Chairwoman, Yellen, added that there was an argument to be made for raising rates in September; however, because of the global weakness and fragile financial market, the committee decided to err on the side of caution and leave rates unchanged.

We saw the global economic growth led to volatility shocks in the global equities market. This once again raised concerns over the world economic development. Hence the FOMC dropped to normalize US monetary policy after announcing concerns on overseas growth.

The Fed decided to maintain near-zero interest rate levels, citing recent equity volatility exacerbated by a global growth slowdown.

The central bank’s ultra-loose monetary policy, coupled with dovish comments from Fed Chair Janet Yellen on Thursday, helped gold end a three day losing streak as it finished Friday in positive territory. 

The spot gold price was last at $1,136/1,136.40 per ounce, its highest in around two weeks and up $3.80 on Thursday’s close.

Though in her proceedings press conference, Fed chairwoman did not rule out an October hike but the market is keener about a hike in December. This would force the FOMC to raise rates sharply to combat said inflation and prevent the organization from increasing the federal funds rate at a gradual pace.

Since the Fed removed all calendar references in its forward guidance in April, the bank is now entirely data-dependent.

Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.

Inflation remains a persistent issue – the FOMC said that declines in energy prices and non-energy imports are the underlying causes preventing inflation from hitting the Fed’s target of two percent.

As of now a weak US dollar would prove to be positive for gold in the near future and if the equities markets lower then gold could rally further.

But the current statement released by the Fed that it intends to raise rates by year-end has made the market players believe that this price rise on gold will be short lived as they expected the dollar to strengthen as early as October.

The Fed’s next opportunity to raise rates will fall in October or December.

Looking ahead, the Fed’s stance on interest rates and heightened concerns of the global economy hurting the U.S. economic recovery has created some strong positive sentiment in the gold market, at least in the short term. 

As we continue to see the after effects of the FOMC meet on gold, prices of the yellow metal are expected to rise in the short term.

As there is not much important data slated to release next week, gold prices are expected to range around 1150$ an ounce but will continue to struggle as soon the rate hike news creeps into the market.

Most analysts are centering on the global market for gold to rally. The fact that the central bank is concerned about the impact the global economy is having on equity markets, some analyst note that further weakness in U.S. stock markets could benefit gold. 

 

Some even expect the U.S. dollar to remain at elevated levels as markets continue to price in a rate hike later this year, which will limit gold’s potential. 

Although U.S. economic data will be limited next week some of reports that could create some volatility in the marketplace include manufacturing data, including durable goods numbers for August, home sales data for August and the final second-quarter U.S. gross domestic product report. 

A relatively light economic calendar next week means the gold market will continue to digest the Federal Reserve’s decision to leave rates unchanged. 

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 -

"Uncertainties For Gold:RSBL"

http://riddisiddhibullionsltd.blogspot.in/2015/09/uncertainties-for-gold-rsbl.html

GOLD TO BE PRESSURED DOWNWARDS: RSBL

 By Mr. Prithviraj Kothari, MD, RSBL

The bull market for gold is entering its seventh year. For the past seven months the market has traded roughly sideways.  Collapsing energy prices and a rising dollar have held back earnings and revenue growth. 

In the past, the demand for gold from China had been a motivating factor behind the rising prices for gold. But now, questions regarding the pace of global economic growth have moved to the forefront recently by price declines in the Chinese stock market, oil, commodities and high-yield debt in the past three months.

 

Such a slow pace of economic growth continues to create a deteriorating investment scene. Commodities and oil are key drivers of global economic growth, and falling prices do not usually portend rising demand. 

Gold has been trading in successively smaller weekly ranges for the past 2 weeks. This week we closed lower at 1095 with a very small range, and it appears that the bottom of the bearish trend.

 

Spot gold, which hit a session low of $1,082.76 an ounce immediately after the U.S. jobs report, managed to rebound 0.5 percent to $1,095.26 . It had fallen to $1,077 on July 24; it’s weakest since February 2010.

Though we saw some buying momentum in gold as the week ended, some market players state that since prices aren’t able to break the $1100 mark, gold does not bode well for a sustained rally.

Surprisingly, $1,100 appears to be the barrier that we just can’t seem to break. Although there are expectations that the market might trade in a tight range next week, gold remains an unwanted asset as the expectations remain that the Federal Reserve will raise interest rates in September.

After rising on Friday, following the U.S. Department of Labor’s employment report for July, the U.S. dollar weakened as afternoon trading wore on. It was a neutral report- not too close and not too far from expectations. Therefore, markets are finding it difficult to analyze and find a meaning in it. 

Economists have noted that July’s nonfarm payrolls report helped to rejuvenate those expectations. Although job gains of 215,000 were below expectations, it stills a “solid” report.

Consensus forecasts ahead of the report were expecting that the U.S. economy created 223,000 jobs. The unemployment rate remained unchanged at 5.3% last month, in line with economist expectations.

The consensus was for 223,000 jobs and July came in at 215,000. However, upward revisions to the previous months’ employment data plus a gain in average hourly earnings and hours worked were both viewed positively by market participants, and as a stronger signal the Fed could raise rates in September. 

The U.S. labor market lost momentum in July, coming in under expectations for the second consecutive month, according to the latest employment data from the Labor Department; however, the numbers still showed jobs gains of more than 200,000.

Friday, the Bureau of Labor Statistics said 215,000 jobs were created in July, down from June's revised number of 232,000; June’s initial report pegged the growth at 223,000 jobs. May's employment data was also revised higher to 260,000 from the previous report of 254,000.

Although the data was slightly weaker than expected, gold prices sold off in initial reaction to the news, dropping almost $10 and falling to a session low of $1,081.40 an ounce. 

Other highlights of the report were-

• The participation rate was also unchanged at 62.6% in July.
• Wage growth continues to expand at a steady pace, increasing 0.2% in July, compared with a 0.2% rise in June.
• The report noted that average hourly earnings rose five cents last month to $24.99. On an annual basis wages have increased by 2.1%.
•  Employees also saw an increase in the work week; the report said that the average workweek rose by 0.1 hour to 34.6 hours.

Although it appears that some of the immediate selling pressure has been alleviated, there is still strong negative sentiment in the marketplace. Retail investors continue to expect to see lower prices in the near-term and market professionals have once again turned bearish on gold.

The first data point that could have potential to move the gold price next week comes Thursday with the release of U.S. advance retail sales for July. The market ends the week with some inflation data with the release of the U.S. Producer Price Index for July.

Despite the negative sentiment, there is still market professional who see some hope for the yellow metal as technical momentum indicators continue to highlight an oversold marketplace.

However, gold is still fundamentally in the doldrums from the bullish point of view. Long term, gold will be pressured downward. 

Markets don’t expect to see another sharp selloff until Aug. 19, when the Federal Reserve will release the minutes of its July meeting. Markets will then expect a clearer picture of an interest rate hike in September.

Till then gold is expected to trade sideways until some solid crucial news is reported.

Markets could be stuck in a range next week in light volume as markets will be deeper into the summer holiday season.

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 -
"Rate Hike Creating Pressure On Gold"
http://riddisiddhibullionsltd.blogspot.in/2015/08/rate-hike-creating-pressure-on-goldrsbl.html

GOLD PERPLEXED

 - By Mr. Prithviraj Kothari,MD,RSBL

Gold this week was giving confused or rather mixed behavioral patterns as it was being pulled between the bullish and bearish forces.

On Thursday, gold ended at $1,220.70 an ounce, up $1.10 or 0.1 percent, on a weak dollar and some disappointing economic data from the U.S. with retail sales dropping more than expected in January and first-time unemployment benefit claims rising more than anticipated last week.
Though gold was up on Friday, followed by weak US economic data, for the week gold was down 0.6%.

Let’s analyze the bullish and bearish factors that were responsible for this wavelike movement in gold-

BULLISH

Weak US Economic data-  Following Thursday’s reaction, gold was up for a second straight session in Friday.
Gold displayed the behavior post the release of some key reports from US. In some soft economic news from the U.S., a University of Michigan report on Friday showed an unexpected, sharp pullback on its U.S. consumer sentiment index in February, after having reported the index at an eleven-year high in the previous month.

Meanwhile, the Labor Department released a report on Friday showing another steep drop in U.S. import prices in the month of January, attributed largely to falling energy prices.
Additionally, the Labor Department said export prices slumped by 2.0 percent in January following a revised 1.0 percent decrease in December. Export prices had been expected to fall by 0.8 percent compared to the 1.2 percent decline that had been reported for the previous month.

Greece issues- Equity markets were hit by the uncertainty prevailing over Greece’s debt negotiations with its European lenders and its future in the euro zone. This has benefited the bullion markets that were up on Friday as safe haven demand for gold increased.

Greece agreed on Thursday to talk to its creditors about the way out of its international bailout in a political climb-down that could prevent its new leftist-led government running out of money as early as next month.

Increasing gold purchases by official bodies worldwide- Central banks were net buyers of gold for the fifth straight year in 2014, with purchases nearing a 50-year high, in the face of growing geopolitical risk. According to a report released Thursday by the World Gold Council in London, central banks' net purchases of gold came to 477 tons in 2014, up 17% on the year and the second-highest figure ( after 2012) since data were first kept 50 years ago.
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Other official bodies worldwide namely Russia's Central Bank (purchases exceeding sales by 173 tons ), Iraq’s Central Bank (added 48 tons to its stocks)  also hoarded gold. Official bodies have been net buyers of gold since 2010, when the euro crisis struck. Increasing volatility in the foreign exchange market is stimulating worldwide demand for gold.

India's consumer demand slid 14% to 842.7 tons, as the country raised import duties on gold in hopes of closing its growing current account deficit. In spite of the decline, India returned to the top spot as the world's biggest consumer as the former leader China’s demand for gold slide 38%.

USD-  Gold was firmly supported this week by a frail US dollar. The dollar trended lower against some select currencies after some soft economic data from the U.S. A weakening dollar supported gold by making the commodity priced in the greenback cheaper for holders of other currencies.

French Economic Report- The statistical office Insee reported on Friday that the French economic growth slowed as expected in the 4th quarter. France's gross domestic product rose 0.1 percent sequentially, in line with forecast, but slower than third quarter's 0.3 percent expansion



BEARISH

US interest Rate Hike-  Gold held above a five-week low on Friday amid a weaker dollar and uncertainty over debt-laden Greece, but the safe-haven metal was set to close down for a third straight week on expectations of higher U.S. interest rates.

Euro zone Data- Apart from the Fed’s anticipated interest rate hike, upbeat economic news from the Eurozone has weighed on gold prices all week. Helped by growth in Germany, the combined gross domestic product of the Eurozone was up 0.3% sequentially in the fourth quarter.

Germany’s Economic Data- Germany's economic growth accelerated more-than-expected on domestic spending and exports in the fourth quarter, while investment dragged expansion in France.
German gross domestic product advanced 0.7 percent sequentially- this was the fastest growth in three quarters and also exceeded a 0.3 percent rise forecast by economists.

 SPDR Gold trust- Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, edged down to 771.51 tons on Friday, from its previous close of 773.31 tons.


 Summing it up, markets worldwide await the interest rate hike by the Federal Reserve which is expected to happen sometime this year. Reacting to this, the outlook for dollar remains upbeat despite the recent losses.

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.

TRADE RANGE-

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1211- 1245 an ounce	Rs.26,500- Rs.28,000 per 10gm
SILVER	$16.55- $18.00 an ounce	Rs.37,000- Rs.40,000 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 -
"Trade Range For Gold Remains Tight"

http://riddisiddhibullionsltd.blogspot.in/2015/02/trade-range-for-gold-remains-tight.html

IS GOLD BEING COMPLETELY CONTROLLED BY THE DOLLAR?

by Mr. Prithviraj Kothari, MD, RSBL

Gold is being pressurised on multiple fronts-

• Equities
• U.S Dollar
• Chinese Demand for Gold
• European Union
• Japanese Bank

The equities markets is yet another reason that continues to pressurise gold. The stock market continues to look poised for another run higher into new high territory.  

Moreover investors have been more confident about the equities market as compared to gold and this has prolonged the ongoing lack of interest in gold and precious metals.

Apart from equities, The US dollar index too has been mounting pressure on gold. 

Dollar is at multi-year highs and does not appear headed for a reversal anytime soon. Ongoing deflationary pressures in the Euro zone along with economic struggles in Japan could potentially keep the greenback well-supported for some time. 

Gold has been dancing to the tunes of the U.S dollar and there is a big expectation that the U.S. economy will continue to grow and that will further boost the dollar. The notion of higher rates and economic strength is driving the dollar higher and gold lower. 

Surge in the dollar, in which gold is priced, has knocked the metal in recent days through key chart support at $1,180 an ounce -- the lowest level hit during last year's 28 percent plunge -- and $1,155 to its lowest since early 2010 at $1,137.40.

Initially $1150 was considered a good support level for gold but now that gold has crossed this level too,  technical analysts have said a test of the $1,000 level could be on the cards after a break of support at $1,155, a retracement level of its rally to record highs in 2011.

Moreover, robust demand for gold from China has been raising concerns amongst analysts and investors. It has been marked that China, the leading gold consumer of the world, usually buy lot of jewellery, bars and coins at dips. 

Chinese gold buyers, who in the past often took advantage of falling prices as a cheap way of buying into the yellow precious metal, are still biding their time. But this year demand from this country has also been low.

On Wednesday, gold touched the lowest since April 23, 2010. Gold sank about 2 percent on Wednesday to its lowest since mid-2010, potentially opening the way for a fall to $1,000 as a surging U.S. dollar weakened the investment case for non-yielding bullion.

Moreover,  the divergence between the U.S. and economies including the European Union and Japan is driving gains for the dollar. 

Gold futures fell, capping the longest slump since May 2013, as the dollar rally eroded the appeal of the precious metal as an alternative investment.

Gold prices ended the U.S. day session narrowly mixed Thursday and not far above this week’s 4.5-year lows. Trading was quieter ahead of Friday morning’s important U.S. jobs report.  Once the report was out and the key indicators were not as per expectations , precious metals rebounded. The spot gold price was last $8 higher at $1147.90/ $1,1468 an ounce in Thursdays close after spiking up to $15850 with the dollar last at 1.2374 against the euro.

The metal has lost around $100 an ounce over the past week, regenerating memories of a stunning two-day drop in 2013 that started a huge wave of divestment and an annual drop in gold prices after 12 consecutive years. 

Silver was down 3.6 percent at $15.43 , paring losses after hitting $15.13, its lowest since mid-2010.

On Thursday, spot gold prices gained after the US jobs data was out. Spot gold was $8 higher at $1147.90/1148.60 per ounce. The US jobs data stated that the US added just 214,000 jobs in October. This was down from 248,000 in September and also below the predicted 235,000. This gave some support to gold that been witnessing a tumble since quite some time now.

Next week brings more attention to euro zone and Chinese economic data, and the results may serve to underscore the monetary policy divergence between the U.S. and the rest of the world.

The would result in strengthening of the dollar thus further putting pressure on gold which would act completely opposite to gold price movements on Friday.

Moreover, several European countries will release their first third-quarter gross domestic product data, and China will release reports on industrial production growth, producer price index and export data.

Even as China Japan and the Euro zone shows that their economy has been growing as much slow pace and they need easy monetary policies, next week there will more outlook on policy divergence with the Federal Reserve needing to decide on the interest rate hike which many analysts believe wont come in March

While the longer-term trend remains down, gold will likely not go straight down. A short covering and/or relief rally will likely be soon in the coming weeks and gold could possibly test the breakdown level of $1183 before potentially heading lower again.

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 -

"Fed Sets The Rules For Gold"

http://riddisiddhibullionsltd.blogspot.in/2014/11/fed-sets-rules-for-gold.html

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