AS THE YEAR ENDS DOES THE BULL MARKET FOR GOLD END TOO?

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

For so many years, gold has given gains and has also been the highest return generating asset in its class. But this trend seems to come to an end now where majority of the market believes that gold is now set to enter the bear market after 13 long years.

Varied reasons are responsible for this sentiments- 

A loose monetary policy, continued fear of a further and worse economic crisis due to weak global economic growth prospers and continuous prediction of impending inflation and devaluation of fiat currencies, these are the major reasons apart from the minute ones responsible for creating  belief in the market that the upswing for gold has come to an end.

Bullion surged 70 percent from the end of 2008 through June 2011 as the Fed bought debt and kept interest rates near zero percent to boost economic growth amid the most-severe global recession since World War II.

Interest rates have been kept low by the fed's massive bond buying programme and this has always supported bullion.

But now there is uncertainty over the market that the Fed may soon start tapering its bond buying programme either in march or may be soon in December. This picture will get clear in the coming Fed Meeting to be held on 17-18 December.

Spot gold hit a three week high on Tuesday trading at $1260.24 during the day, It rose as much as 1.6 per cent. This rise was seen gaining momentum, after the market's recent short-covering rally while investors and analysts speculated over the timing of U.S. monetary stimulus reduction

Just after a gain of two days, gold slipped on Wednesday as short-sellers rushed to cover bets on sharp price falls, as a tentative U.S. budget deal returned the focus to prospects for the Federal Reserve to curb monetary stimulus.

As soon as the US retail sales data was out on Thursday, gold fell 2 per cent. The data boosted the dollar and fueled expectations that the Fed could reduce its bond buying programme in somewhere in December itself.

The US data released in Thursday, showed that retail sales had climbed 0.7 per cent. Many traders and analysts in the market are living with the belief that the Fed may start scaling back its bond purchases at the forthcoming meeting to be held on Dec 17-18. This decision would be based on positive economic data coming in from the US on employment, housing, construction, manufacturing and services sector. Another factor that prompts  the Fed to taper QE is the recent budget agreements that shows hope of a shutdown being overcome.

Though gold rose one per cent on Friday after a two day plunge. the marketers still believe that gold is subject to further downfall in the coming week as we witness one of the most important meetings of the Fed. This shall hopefully be a fate deciding factor for the bullion market.

Apart from the retail sales data, some important news came in from the SPDR Gold Trust- the biggest golf ETF. It states that the holding in the SPDR gold trust had fallen the most in nearly two months in Thursday. The limited inflows has restricted an upward movement in gold prices.

But in the Asian markets gold was seen selling at high premiums. Premiums on the Shanghai Gold Exchange for 99.99 percent purity gold picked up to $10 an ounce from $7 in the previous session.

In a sign of the toll that labour unrest in South Africa is taking on mining companies, North am Platinum said on Friday it expected to lose 500 million rand ($48 million) this year due to a strike by more than 7,000 employees and that talks to end the walk-out would resume only next year.

Moreover, there were reports out that North Korea is selling huge quantity of gold to China because of a possible economic crisis in the country. If at all this news its true and it will be a significant driving point for precious metals.

The trade range for gold is $1210- $1270 an ounce in the international markets and Rs.29000 to Rs.31,000  per 10 gram the domestic markets



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.
- Previous blog -
"Frenzy Friday"
http://www.riddisiddhibullionsltd.blogspot.in/2013/12/frenzy-friday.html

FRENZY FRIDAY!

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

All this week Bullion danced to the tunes of Labour report from US.

Gold is down about 28% this year, heading for the first annual loss in 13 years, as solid U.S. economic data has underlined expectations that the Fed will begin curbing stimulus.

The bond-buying stimulus has strongly supported gold prices as it has served to keep interest rates ultra low, an ideal environment for non-yield bearing assets. It so happened that a 2% increase in Gold prices was the biggest one day gain in over a month’s time. This can be attributed to short covering and new fund buying that deal that the FED plan to exit asset purchase scheme will still take time.

Gold prices fell on Thursday but remained range bound after solid U.S. economic growth and jobless claims data; firmed up talk that Federal Reserve will begin scaling back stimulus programs within the coming months. Even though European Central Bank and Bank of England have continued to hold off from any new policy action, markets are fixated on U.S. economic snapshots and any data that gives an idea when the Federal Reserve might start curbing its bond-buying programme.

Gold prices rode a rollercoaster Friday, regaining some ground after Thursday's sharp losses right ahead the U.S. Bureau of Labor Statistics published strong job numbers, to fall sharply after the announcement.

The game was all being played by forecasts. 

On Friday, as the US Labour report was released, gold was seen in a different mood.

Gold climbed in volatile trade on Friday, bouncing from session lows reached after U.S. jobs data beat forecasts, as traders who had bet on even larger losses rushed to cover their positions.

The actual figure was higher than forecast at 203,000, compared to consensus forecasts of 185,000. The rate of US unemployment also fell to a five-year low of 7%, but economists suggested the figures were heavily skewed by the US government shutdown in October. Thousands of government employees who were temporarily laid off returned to work last month. Unemployment rate in the US fell to 7.0% from 7.3% in October. Economists predicted a smaller decline to 7.2%.

Meanwhile, the Commerce Department said personal income edged down by 0.1% in October after increasing by 0.5% in September. Economist did not expect the drop, as they had expected income to increase by 0.3%. The market fell immediately after the figures showed that U.S. employers had hired more workers than expected in November and the unemployment rate had dropped to a five-year low of 7 percent, which strengthened the case for the Federal Reserve to start reducing bond purchases as soon as this month.

Gold prices have now erased some of their losses for the week but were still down 1.2 percent after having dropped sharply on Thursday as data showed the U.S. economy grew faster than estimated in the third quarter.

The majority looks through the noise towards the end goal, i.e. tapering and a slow normalisation of US monetary policy which is coming closer by the day. As a result, at this stage it appears as if rallies will simply be sold into, whether the data beats expectations or not. Gold ETFs seems to liquidate on every opportunity, with the latest data showing ETF holdings are down another 113Koz. Silver should follow gold and as a result remains a sell into rallies.

The Federal Reserve, which holds its next meeting on December 17-18, has said the timing of its tapering depends on the health of the labour and housing markets.

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.

- Previous blog -

"China Support for gold"

http://www.riddisiddhibullionsltd.blogspot.in/2013/11/china-support-for-gold.html