-By Mr. Prithviraj Kothari, MD, RSBL (RiddiSiddhi Bullions Ltd.)
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Gold prices started weaker in Friday’s North American session, but reversed course and rose 1.5% following a lower-than-expected U.S. nonfarm payrolls report that increased confusions over when the Federal Reserve will start paring back its massive bind buying. The U.S. Bureau of Labor Statistics said that 169,000 jobs were created in August and the unemployment rate fell one basis point to 7.3%. That’s under the 170,000 to 180,000 expected.
The better US Non-Manufacturing ISM data sent Gold heavily lower, as a Fed tapering for September seems on the cards now. Gold dropped by nearly 25 USD to a low of 1365 after the data with heavy volumes. Silver traded down to 23.01.
The U.S. August services sector ISM expanded to 58.6 compared to an expectation of 55.0. The ADP showed that 176,000 jobs were added in August while the jobless claims for the week ending 31 August declined 9,000, with the four-week average dropping to the lowest level since October 2007. The U.S. government bond yield surged while the Dollar Index climbed and the gold prices dropped upon the encouraging economic data. The European bond yield has also been rising in reaction to the Fed’s expected bond purchase tapering as well as the recent European growth recovery. The German 10-year government bond yield has surged above two percent on Thursday compared to 1.3 percent at the end of last year.
Increase of jobs could push the Fed heavily in favour of tapering stimulus before the end of September, but a disappointing level of growth could sway the central bank to wait at least another month.
Despite Friday's rally, gold ended the week 0.5 per cent lower for a second consecutive weekly loss as its safe haven appeal dropped on lack of progress about possible US military strikes against Syria.
Gold prices could rise next week as market awaits Fed tapering, moreover, there are some other factors underpinning gold, including decent physical demand in Asia and the likelihood of more Indian purchases ahead of the holidays there.
Another factor for gold is a potential military strike on Syria by the U.S., following reports that the government there allegedly used chemical weapons against its citizens. As President Obama persuades the Congress to vote and looks for the international backing for war in the G20 meeting, the delay in the Syrian strike has put a damper on gold prices
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Gold traders are watching the Syrian conflict, but so far the saber-rattling has done little to impact markets. Several analysts said going into next week that Syria might take on added significance and the conflict will likely at least add support to prices.
The gold market has another week and half to mull what the Fed might do, as the Federal Open Market Committee meeting is Sept. 17-18, and there’s a debate over whether the Fed would taper its QE program or not.
Monetary stimulus has been a major driver of gold's rally for recent years as the metal's stats as a hedge against inflation and economic uncertainty benefitted from increased money printing by central banks in low interest rate environment.
Gold rose to a record high of $1920.30 on 6th September - exactly two years ago. Year-to-date, the metal is down nearly 16 per cent.
Meanwhile, India welcomed the new RBI governor - Mr. Raghuram Rajan with open arms. And this was clearly visible in the market movements once he took his post. Equities were up, rupee appreciated and the sentiment became positive.
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In a seven-page statement read out at a press conference after markets closed, Dr.Rajan set out a bold, reformist vision for his tenure at the central bank. Included in it are measures to deepen securities markets, improve financial inclusion including for SMEs, support and push for the rupee as an international currency and a warning for corporate defaulters of loans. Declaring that he would “preserve the value of the currency”, Dr. Rajan said India is a fundamentally sound economy with a bright future.
On Tuesday, The Reserve Bank of India (RBI) has said gold supplied to units in Special Economic Zones (SEZs) and export units and to star/premier trading houses will not be treated as gold supplied to exporters under the 80/20 scheme — the allowing of import with the condition that a fifth must be supplied to exporters. With RBI’s new clarification, exports might be higher but gold supplied to exporters from a Domestic Tariff Area (any place outside an SEZ or other units outside a Customs-bonded one), other than export zones and by export houses, will be considered as part of the 20 per cent policy. Such exports last year were estimated at 55 tons and this year could be higher, with improved demand. An exporter will have to show a proof of export, including proof of inward remittance. Since the latter takes 270 days, waiting till then will mean the next export will be delayed.
Now Indians have eyed their entire hopes on this new governor, who promises to deliver.
The primary purpose of this blog by Prithviraj Kothari - MD, RSBL, is to educate the masses of the current happenings in the Bullion world.”
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