DOLLAR MAKES GOLD LOOK ATTRACTIVE!

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

Yes indeed, dollars helped in making gold look attractive.

This week gold prices benefited from the U.S. dollar's fall to a seven week low against a basket of currencies. Broad USD weakness was the theme of the day yesterday; leaving most of the people puzzled about the negative performance of late and force some to throw in the towel on their long positions.

Precious metals edge higher on modest demand in early Asia, but worries about the Federal Reserve starting to withdraw its stimulus program with an improvement in economic growth is likely to weigh on prices. The Fed's stimulus program has been supportive for gold prices as it triggers demand for the metal considered a hedge against inflation.

Bullion has traded as low as $ 1,180 an ounce in late June on fears of massive fund selling as the Fed looked set to cut its bond buying stimulus as early as September.

While western investors focus on Federal Reserve’s quantitative easing tapering timelines, the bigger gold story is taking place in China. The negative sentiment currently attributable to the gold price masks the accumulation of gold by the Chinese who are set to overtake India this year as the world’s top gold consumer. This is a startling turnaround given the Chinese embargo on gold ownership was only lifted as recently as 2003.

Chinese exports rose 5.1% from a year earlier, rebounding after from June's 3.1% fall, the customs agency said. However, the medium-term economic outlook remains volatile with a broader range of outcomes now possible. China gold production reached 156 tons during 5M2013, up 11% YoY (7.5% in May and 8.6% in 2012), according to China Gold Association.

In 2012, China’s gold consumption reached 776 tons, the world’s largest, up 8% YoY, representing import reliance of 49%, down from 53% in 2011. However, note that gold accounted for only 1.2% of China’s total foreign reserves according to the World Gold Council, compared to 69.8% in US. This prompts China to consider further accumulation of gold to diversify the reserve mix.

Silver and platinum group metals also rallied after data showed Chinese imports of industrial commodities and raw materials rose in July and the world's second-largest economy showed signs of stabilizing after more than two years of slow growth. Moreover the good economic figures out of Germany, which shows that despite fears to the contrary, exports are picking up from manufacturing economies. This coupled with the fact that the markets were running short and the very thin volumes, created the spike. In the past, I have always recommended that Platinum is a buy on Dips. The way it has rallied, it is all thanks to the improving economic scenario.

While in India, though the Dollar weakness and a mostly supportive movement in global equities pushed up the yellow metal today but gains in Indian Rupee ensured that the rise in local futures is tepid

India's gold demand has remained moderate over last few weeks after a spike in April when prices slumped towards INR 25000 per 10 grams in the major local markets. However, World Gold Council is upbeat about the demand for jewellery picking up momentum in the coming quarters in the country and even projected demand for gold touching 865-965 tonnes in 2013, thus exceeding 2012's record.

Currently, most of the Indian companies dealing with Gold related products are facing a severe crunch to get metal. With the government rules and regulations, it has been really hard for the importers. I do expect that Government could shed some more light on the recently announced measures to curb Gold imports.

Gold support is at $1,290 and $1,270. Resistance is at $1,320 and $1,349. $1300 should be the support zone and given the current mood of hunting stops, we are left flipping a coin on which direction the stop hunters could take.


Silver support is at $20.00 and $19.75, resistance is at $20.40 and $20.70.

“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: "WAVES OF DISAPPOINTMENT FOR THE MARKET":

http://riddisiddhibullionsltd.blogspot.in/2013/08/waves-of-disappointment-for-market.html

WAVES OF DISAPPOINTMENT FOR THE MARKET

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

As we discussed last week that this week had a bundle of surprises for gold of which the US employment data was the biggest surprise. There were mixed sentiments in the market post the data release. Investors believed that the jobless claims would be much high compared to June.

Moreover Fed Chairman Bernanke's statement over the stimulus plan created even further confusion.

There was mystification in the market as the jobless claims were 326,000, below the forecast of 346,000 while the private sector ADP change in non- farm payroll came in at 200,000 well above the forecast 179,000.

A weaker-than-expected U.S. July jobs report and a fall in the dollar helped gold rebound from a drop of more than $25 an ounce during Friday’s session, but prices still marked the first weekly loss in four week.

Gold initially fell to a two week low at $1280 an ounce as encouraging US gross domestic product and factory activity data earlier in the week reduced the metal's appeal as an investment hedge.

It jumped about  2 percent from its session low after government data showed U.S. employers slowed their pace of hiring in July but the jobless rate fell anyway, easing fears that the U.S. central bank might imminently reduce its $85 billion monthly bond buy back stimulus.

Gold’s hard times have come from the view that easy money, which has weighed on the dollar and lifted gold in recent years, is going bye-bye sooner or later.

US jobs data is vital to the gold market after the US Federal Open Market Committee indicated that quantitative easing may continue until the unemployment rate falls to 6.5 percent. The Fed remains committed to purchasing $85 billion in new debt per month in an open-ended programme (QE3). Accommodative measures from the US central bank are supportive of commodity prices because extra liquidity tends to debase the dollar and create future inflationary risk.

I am optimistic over the long-term time frame. Targeting inflation, the Federal Reserve's inability to taper, and underlying problems in Europe will make sure precious metals will outperform down the stretch. The nonfarm payrolls data usually brings volatility to gold, but the metals just haven't had enough upside momentum to constitute a breakout, so till that time it will be wait and watch.

In other gold market news, China’s thirst for physical metal remains strong. Imports from Hong Kong at 105 tonnes in June were down slightly from 114 tonnes in May but this was still the fourth-biggest month on record, according to Macquarie, citing Hong Kong export data. Apparent demand from China at 835 tonnes is up more than 50 percent on last year, the broker estimates.

However demand from India has not picked up pace as there are no clarification over the RBI policies for gold and the government is trying to curb g0ld imports to rectify the CAD.

As far as the international markets are concerned, it’s going to be a light week for U.S. economic news, but globally, next week will include a few more central bank meetings including the Reserve Bank of Australia, which is expected to cut rates. The Bank of Japan is also meeting, but is not expected to make changes to monetary policy.  Chinese data slated for release include industrial production, retail sales, export data and inflation report.

Gold support is at $1,280 and $1,260. Resistance is at $1,320 and $1,340. Silver support is at $19.20 and $19.05, resistance is at $20.20 and $20.40.

In the domestic market gold is expected to move in the range of Rs.26,000 to Rs. 29,500 in the coming week.

“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 -

"Bundle of surprises for gold"

http://riddisiddhibullionsltd.blogspot.in/2013/07/bundle-of-surprises-for-gold.html