IS GOLD SET TO ENTER THE FIRST BEAR MARKET SINCE 2008?

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

There is a strong debate in the bullion market as to whether gold will enter its first bear market since 2008 as we see the world economy is improving or will it rally?

Some investors see gold plunging to $1400 and some see it shooting to $1800.

But most investors and traders are under the perception that gold is all set to enter the bear market as the US economy shows signs of global recovery.

The main driver behind gold’s weakness this year has been the focus on global growth and that’s meant rotation out of defensive assets like gold.

Bullion slipped this year after 12 straight annual gains as Federal Reserve policy makers debated the pace of stimulus. Gold hit a 10-month low below $1,540 an ounce on Thursday as the dollar strengthened ahead of a statement by European Central Bank chief Mario Draghi, after the bank left rates on hold as expected at its latest policy meeting.

Spot gold fell as low as $1,539.74 an ounce, its lowest since May 30, and stood at $1,546.90  

Gold is down 7.4 percent this year as global equities trade about 2 percent below a more than four-year high. Bullion is set for the biggest weekly drop in seven months and is nearing a bear market even as the Bank of Japan yesterday increased bond purchases and European Central Bank President Mario Draghi warned that he sees risks to Europe’s recovery.

Gold slipped in on mounting confidence that the global economy is strengthening and as investors awaited U.S. jobs data. Silver was near its lowest since July.

The entire market was expecting a good payroll farms data and a low unemployment rate compared to the last report. News of recovery of the US economy pushed gold further.

However, on Friday, when the data was released, it was a completely opposite picture.

The U.S. job-creation engine sputtered in March as employers hired fewer workers than expected and a shrinking labor force helped push the unemployment rate down to the lowest in four years.

Payrolls grew by 88,000, the smallest gain in nine months and less than the most-pessimistic forecast in a Bloomberg survey, after a revised 268,000 February increase, Labour Department data showed . The jobless rate fell to 7.6 percent from 7.7 percent.

The report followed a string of disappointing data this week on activity in the US manufacturing and services sectors and on private-sector hiring, raising concern the recent rally in equities has outrun economic fundamentals.

Considering that the great economic slowdown has still not shifted to the path of recovery, gold and silver once again came in to the spotlight. The negative data report released on Friday, pushed up gold prices further.

As far the Asian markets are considered, India awaits the beginning of the festive season next week and Chinese markets too will open up after a long holiday. Gold prices will further move upwards as we see strong demand for gold in the Asian markets. Weddings will start in India, the world's biggest buyer of gold, and continue till early June. Festivals like Gudi Padwa, Akshaya Tritiya, Baisakhi etc are lined up too. 

Consumers, investors and traders have started entering the market at this dip and I too fell that it is a wise decision to do so.


“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 -
" Is it time to adopt gold or abandon it??"
http://riddisiddhibullionsltd.blogspot.in/2013/03/is-it-time-to-adopt-gold-or-abandon-it.html

IS IT TIME TO ADOPT GOLD OR ABANDON IT??

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

Gold and silver showed mixed sentiments last week and continued to make wave like movements despite many news that did the rounds in the previous week. Mixed movements in the forex market could have resulted in the mixed movements witnessed in the commodities market so far.

Gold and Silver slightly declined on Tuesday, after the news from Cyprus that its parliament passed on the bailout plan. On the other hand, other commodities prices such as oil prices and the stock market indexes such as S&P 500 rose. The shift in market sentiment towards bullish may also have contributed to decline in demand for precious metals and other safe haven investments. 

However, On Wednesday, though gold and silver opened with a negative note, they managed to bounce back by late evening. Causing the climb was a fall in U.S. equities which made the metal more appealing as an investment. In addition, continuing euro zone fears, following developments in Italy, gave gold extra upside impetus. The speculation around Cyprus bailout plan is currently pulling down the Euro and EU stock markets. These speculations have helped rally gold and silver prices. 

The Cyprus bailout is a wake-up call to buy gold. All those who have waited long to buy gold, can now start making decisions. With Europe's unsolvable debt crisis and America's own unemployment problems wherein for the first-time jobless claims rose by 16,000 to 357,000 in the week ended March 23, the highest level in more than a month, it's only a matter of time before we witness another gold rally.

Thanks to the Federal Reserve, central banks around the world are losing trust in the U.S. dollar; which used to be the “safe haven” currency. As more countries print paper money, known as “fiat currency,” the same countries will be reluctant to hold the fiat currencies of other countries in their reserves. Gold bullion is becoming a need for central banks, and I believe central banks will buy more gold bullion, because they have to, as paper money becomes too plentiful. While central banks are buying gold bullion at a rate not seen in 49 years, the price of gold bullion has declined—actions that bring forward the question of price manipulation in the gold market. If gold prices are indeed being suppressed, which is very difficult to prove, the end result will eventually be a major breakout for gold bullion prices on the upside. 

To give you an idea, China has the biggest reserve in the world—worth more than $3.0 trillion. But compared to the gold bullion holdings of other major central banks, China is still far behind. The U.S., Germany, and Italy hold more than 70% of their reserves in gold bullion. Imagine what would happen to gold bullion prices if China even just tried to double its gold reserves. In the backdrop of the gold bullion buying spree, central banks around the world are printing paper money, working to depreciate their currencies to jumpstart exports. (Source: business2community.com)

I feel its matter of time. If things get messier for either, investors can see gold easily hitting $2,000/ounce by the end of the year.

“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 -

"Cyprus gives gold a helping hand"

http://riddisiddhibullionsltd.blogspot.in/2013/03/cyprus-gives-gold-helping-hand.html