-By Mr. Prithviraj Kothari, MD, RSBL (RiddiSiddhi Bullions Ltd.)
Firstly, I apologize to my readers for not posting the Blog on Saturdays, that I usually do. We were busy with the SPARSH – Touch of Elegance store launch in Borivali, Mumbai. Secondly, what just happened to Gold on the day of my store launch? Gold sent the entire market into shockwaves.
It lost $30 in just two minutes. There was huge sell order that triggered the plunge. This single order was said to be the culprit as it took gold down to a three month low. Friday extended bullion's drop to a fourth consecutive day, its longest losing streak since late June. For the week, the metal was down 3.4 percent, its sixth weekly decline in seven weeks.
Gold's sudden price tumble was a result of hedge funds and institutional investors flooding the gold futures market with sell orders. Spot gold was down 1.5 percent at $1,266.80, having earlier fallen as much as 1.8 percent to its lowest since July 10 at $1,262.14 an ounce. An unusual large sale order in New York Futures and signs that a deal strike to avert potential US debt default prompted investors to sell and flee the market.
Gold is generally viewed as a safe haven asset in turmoil. But some confusion prevails in the market that has set gold moving on the other side.
However, later in the day markets attention was again moved towards the data that was out for release. Though gold was under selling pressures, the losses were almost halted by data that showed US weekly jobless claims touched a six month high in the previous week. Gold was quickly sold below 1300 again, but had to rally when US jobless claims came out with a 374’000 number and headline traders let it jump to the day’s high of 1312. The U.S. Bureau of Labor Statistics however said the number was wrong, due to a new computer system in California, as well as the government shutdown, so that gains were immediately given back.
Trading volume, which has been light this week, heated up briefly for about 10 minutes in U.S. morning trade. Prices remained range bound, with buyers on the sidelines due to a lack of U.S. data and anxiety over how the stand-off in Washington will play out, as a U.S. government shutdown continues.
Gold remains vulnerable and possibly quite volatile in the short term but it is becoming increasingly attractive to long-term buyers with a significant rise in the price all the more likely over the next three-to-five years.
The uncertainty over the US government shut down is expected to create a negative impact on consumer spending, unemployment and economic activity. And if the impact will last longer then it's is less likely that the Federal Reserve would make any pending change in the US monetary policy. The Federal Reserve will not risk adoption of policies that might trigger a full-blown recession.
The current situation of the market place is that the US government will come to a budget agreement and raise the debt ceiling. But, in case that does not happen, the market has to be prepared for soaring gold prices as the yellow metals will once again dress up as a safe haven asset.
In the domestic markets, it's the demand numbers that's playing games. Despite seasonal demand, there is a weak trend in the domestic market. However, the demand is expected to pick up as rural income is expected to boost.
India gold purchases may go up this year on likely firm rural demand boosted by higher than expected monsoon showers, weak yellow metal prices. A report by the WGC expected demand to high in gold this quarter. Crashing international prices are also prompting buyers to enter the market at dips.
First thing that Indians stock is food and then Gold,. Gold, in India, is always considered above all other asset classes. Be it equities, real estate, funds etc. Demand for gold is expected to increase in the days to come.
Looking ahead, Indian festival and wedding-related demand, restocking by jewellery manufacturers worldwide in anticipation of Christmas and New Year retail buying, continuing strong demand from China, and a pick-up in central-bank acquisitions, should underpin the gold price and could contribute to a resumption of the long-term uptrend in the metal’s price.
Gold in the international and domestic markets is expected to trade in the range of $1230- $1320 an ounce and Rs.27,000- Rs. 31,000 per 10 gram respectively.
The primary purpose of this blog (Prithviraj Kothari's view on Bullion Markets- MD,RSBL (Riddisiddhi Bullions Ltd.)) is to educate the masses of the current happenings in the Bullion world.
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"Only one thing is certain for gold.....uncertainty"
