TRADE RANGE FOR GOLD REMAINS TIGHT

- By Mr. Prithviraj Kothari, MD, RSBL

The sentiments are so strong for the gold market that people get overly excited about the top as well as the bottom of the market. At times gold seems to be behaving like a common man who is fleeced by the minutest to the most extreme global scenarios.

This week too gold was dancing to the tunes of the US dollar, The US Jobs Data, Fed Interest rate hike, ECB’s actions on Greece, crude oil prices. So it’s basically a vicious circle for gold.

Ups and mostly downs were being strongly witnessed by gold. For the month of January Gold was up 8.4 per cent, its biggest monthly rise in three years, helped by a sharp slowdown in US fourth-quarter economic growth. US gold for April delivery edged up 0.2 per cent to US$1,265.20 an ounce.

But the first week of February was disappointing for gold. Gold steadied on Friday ahead of crucial US employment data, but was set to post its biggest weekly loss in almost two months after steep gains at the start of the year.

The gold market appears to be in a tug of war with uncertainty: in Europe, with Greece boosting safe-haven demand on one side, and a strong U.S. dollar on the other side. The metal dropped 1.5 percent this week the most since December.

Let’s analyze the key influential factors for gold

US Employment Data- The employment data released on Friday was much above the expectation levels and this changed the market’s view on when the U.S. Federal Reserve will announce a rate hike, and has hurt the metals complex since then.

Total nonfarm payroll employment rose by 257,000 in January, and the unemployment rate was little changed at 5.7 percent, from 5.36 percent the U.S. Bureau of Labor Statistics report stated.  Job gains occurred in retail trade, construction, health care, financial activities, and manufacturing. The change in total nonfarm payroll employment for November was revised from +353,000 to +423,000, and the change for December was revised from +252,000 to +329,000. With these revisions, employment gains in November and December were 147,000 higher than previously reported.

This further raises the expectations for the Federal Reserve to hike interest rates by mid-year, denting the appeal of non-interest yielding assets such as gold.

Strength in the U.S. economy is backing the case for the Federal Reserve to raise interest rates, curbing gold’s appeal because the metal generally gives investors returns only through price gains.

Greece- Meanwhile, investors remained wary of developments in Greece, after the European Central Bank said it would no longer accept Greek bonds as collateral for lending, shifting the burden on to Greece’s central bank to provide additional liquidity for its lenders and increasing pressure on Athens.

Greece’s government is seeking debt relief on its current €240 billion bailout, which has fuelled fears over a clash with its creditors that could bring about its eventual exit from the euro zone.

This uncertainty over Greece has provided the much needed support to gold prices.


ECB's action on Greece- The market kept an eye over the ECB’s actions on Greece after the newly elected Greek Prime Minister wanted to end the austerity programme by the Troika. The ECB restricted Greece from tapping the ECB’s direct liquidity lines, forcing the Greek banks to borrow at a higher rate from the Bank of Greece under the Emergency Liquidity Assistance.


Uncertainty about the ECB’s funding for Greece and the country’s exit from the Euro has led to a stronger demand for gold. Despite the weak Euro, which has fallen five percent against the Dollar this year, the gold price has risen 6.64% year-to-date and has climbed as high as ten percent this year. While some profit taking is natural after the big gold price move, the continuous liquidity boost from China and Europe and the volatility in the currencies are likely to support gold prices in the medium-term.


The metal is still up 6.8 percent this year amid concern about austerity measures in Greece and as central banks in Europe and Asia announced more stimuli to bolster economic growth. Investors have added to bullion holdings in exchange - traded funds for the past month, bringing assets to the highest level since October.

Apart from global facilitation., another element that will be crucial for the gold market are the growing problems in Europe as the European Union and Greece have been unable to develop a renegotiation agreement.

Following factors shall be monitored over the weeks to come-

• G20 meeting on 9 February,
• China’s January inflation data on 10 February
• U.K. December manufacturing output on 10 February,
• The Eurozone December industrial production on 12 February
•  The U.S. January retail sales on 12 February
• The Eurozone Q4 preliminary GDP on 13 February.

TRADE RANGE FOR GOLD:

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1180- $1270 an ounce	Rs. 26,000- Rs. 28,000 per 10 gm
SILVER	$16.15- $18.00 an ounce	Rs. 36,000- 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 -
"Too Many Surprises For Gold In The Week To Come"
http://riddisiddhibullionsltd.blogspot.in/2015/01/too-many-surprises-for-gold-in-week-to.html

APPETITE FOR GOLD DECLINED

 -By Mr. Prithviraj Kothari, MD, RSBL

In the past few weeks we have seen volatility in gold but then it has settled back on the lower trading range. With fall in gold holdings in the SDPR gold trust we have seen investors interest weakening in the yellow metal. Apart from the SDPR, the dollar has also played a crucial role in influencing gold prices and it will continue to do so in the coming months.

Although, US economy is on a mend, the actions taken by central banks (Euro-zone and Japan) to prop up its economies will likely result in to weakening of their respective currencies and strength in the dollar in turn prices heading lower.

Moreover, the decision coming in from the Swiss referendum not to boost its gold reserves, at the same time falling oil prices and diminishing investment actions are also signifying that the market has temporarily disowned gold and has been replaced by more interest generating assets in its class.

Earlier in the week economists admitted there was some downside risk to the employment forecast following Wednesday’s private sector payrolls data, compiled by payrolls processor ADP. The report was weaker than expected as corporations and businesses created 208,000 jobs last month. The unemployment rate for November was 5.8%, unchanged from October’s reading of 5.8%; economists were expecting an unchanged reading. The report also said that the labor force participation rate was unchanged at 62.8%. Last month we saw a very strong labor market as the reports released by the US labor department states a significantly higher-than-expected nonfarm payrolls report for November.

On Friday, the Bureau of Labor Statistics said 321,000 jobs were created in November, up from October’s revised level of 243000; October’s initial report said 214,000 jobs were created. September's employment report was also revised higher to 271,000 from the original report of 256,000 jobs. This was the biggest jump in employment since January 2012. The report noted that the 12 month average for employment was 224,000.

There was a huge growth witnessed in the jobs in November which was led by gains in professional and business services, retail trade, health care, and manufacturing.

Even though the jobs report was extremely impressive, gold did not extend sharp losses after its release. The previous two jobs reports saw upward revisions in employment gains, and wages also rose. The job gains in 2014 are the fastest rate since 1999

Gold prices dropped under $1,200 following a blowout November nonfarm payrolls report. It instantly fell by 10$ as there were further expectations that the Fed will start talking about the Fed funds going higher than expected. Such news is not motivating for the commodities markets and it further expected that gold prices will weaken.

Simultaneously we saw the US dollar rising on this news. The dollar index rose above 89 for the first time since March 2009. The dollar advanced to the highest since 2009 against a basket of currencies, cutting the appeal of bullion as an alternative asset. Dollar is trading currently at $ 1.228 against euro. Euro is slacking after the ECB left the interest rates unchanged.

The strong labor report further signifies the fact the Federal Reserve may soon hike rates and this could happen as early as next spring.

The only issue that could be of concern would be the wage growth reports as it was not seen to be that strong and could keep the Federal Reserve apart from pulling the trigger on interest rate hikes.

Before hiking the rates the Fed would want to see some further improvement in the wage growth which could practically happen if the current momentum in hiring is maintained and the underemployment rate continues to fall.

The labor markets have been improving rapidly over the past few months. The issue of concern now is the Fed’s reaction to its mid-December meeting. But if we see the global scenario gold prices in the international markets is expected to trade lower as a hangover of the recent run of losses.

In the near past, we have the dollar being the key influential factor for the weakened in the yellow metal and it is expected to continue to do so in the near future to.

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 - "Too Many Economies Putting Pressure On Gold"
http://riddisiddhibullionsltd.blogspot.in/2014/11/too-many-economies-putting-pressure-on.html