UP DOWN UP- GOLD PRICE TREND UNCLEAR

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

So far...so good...it has been a decent start for gold. In the first fortnight of 2014, gold scaled up by 3.7 per cent. As we all know that 2013 has been one of the worst performing years for gold and it was down almost 28 per cent. It even ended a 12 year bull run for gold. All this may sound very repetitive as I have mentioned this time and again in all my articles lately.

But this has cropped up again as at this point where some believe that gold is making a comeback it is very important to know that is actually where gold is headed. 

Throughout the week, there were not one but many factors that played a pivotal role for gold's price movement:

• Strengthening of US dollar
• Federal Budget Balance
• Beige book
• Fed Chairman Ben Bernanke’s speech.
• Core CPI m/m
• Building permits
• German Buba President Weidmann’s speech

The recent disappointment in non-farm payroll report may have lowered the chances of FOMC reducing its stimulus program in the near future. But that does not mean that we can expect Gold to begin a new rally? There are various reasons for it. One of the major concerns is the demand for leading precious metals’ ETF including iShares Gold Trust (IAU) and SPDR Gold (GLD) continued to diminish. During January, SPDR Gold’s holdings declined by 1%. 

But the upper trend did continue during the start of this week too. Gold rose to its highest level in a month on Tuesday at $1,255.00 an ounce due to a drop in equities and uncertainty over the U.S. growth outlook after a disappointing jobs report last week.  But later in the day, gold lowered. It fell nearly 1 per cent as a rally in U.S. equities that was sparked by encouraging December retail sales data dampened buying sentiment among bullion investors. 

On Wednesday too, gold fell as the dollar rallied over producer prices data released in US. It showed that the price has risen sharply in December, even though there were few signs of sustained price pressures.

Supporting investor appetite for riskier assets like equities, the Federal Reserve said in its Beige Book published late on Wednesday; the U.S. economy continued to grow at a moderate pace from late November to the end of 2013, with some regions of the country expecting a pick-up in growth.

Thursday followed suit, as a developing global economy bettered the market scenario for equities and gold lost its appeal as an alternative investment and made it vulnerable to further losses.

Gold rallied towards the $1,255 level but it failed to go through it because there is no investor interest, and there may be a push towards the $1,210/$1,200 area.

Gold now relies on macroeconomic events that are coming up for the month of Jan:

1) The FOMC meeting: 

The next meeting of the Fed's FOMC (Federal Open Market Committee) is on Jan. 28-29, while the next major U.S. data figure is the U.S. weekly jobless claims report, scheduled for release

2) Physical Demand from China:

In China, the biggest physical market for gold, demand has picked up since the beginning of the month in the build-up to the Lunar New Year, when the metal is bought for good fortune and given as gift. 

China has become the third-largest holder of gold, according to a Bloomberg Industries report. Gold holdings were nearly 2,710 metric tons, compared with the last reported holdings of 1,054 tons in April 2009, according to the report. Italy’s holdings are 2,451.8 tons, and France owns 2,435.4 tons, according to the World Gold Council data. The US is the biggest holder with 8,133.5 tons. The PBOC reported in April 2009 that its official gold reserves stood at 1,054 tons – and it has not reported any increase in official gold reserves since that announcement nearly five years ago,

China will continue to add its official gold holdings in a bid to raise the status of its currency, the Yuan and strengthen it.

So now all eyes on the upcoming FOMC meeting and wait for the best to happen

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 -

"Gold rolling around payroll"

http://riddisiddhibullionsltd.blogspot.in/2014/01/gold-rolling-around-pay-roll.html

GOLD ROLLING AROUND PAY ROLL

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

New Year’s first full week began with a green note for gold where the weakness on Wall Street widened bullions rally.

However, Gold fell on Tuesday and Wednesday.  An expectation of a positive US jobs data (slated to release on 10th Jan), compelled investors and traders to believe that the Federal Reserve will continue to scale back its monetary stimulus on the pillars of a recovering economy.

After a consecutive fall of two days, gold prices gained momentum on Thursday ahead of the key U.S. nonfarm payrolls report. This report was a deciding factor for the Fed whether it will continue its tapering. The change in private payroll data by ADP on Wednesday showed a strong increase by 238,000 and also exceeded the prior figure of 215,000 for the month of November.

In either ways, traders were ready for some volatility in precious metals.

Finally the tussle between bears and bulls end with the release of Non-Farm Employment Change data released on Friday where Bulls gained an upper hand. A weaker than expected US jobs data supported the fact that US Federal Reserve would now go slow on its tapering.

US nonfarm payrolls rose just 74,000 in December, the smallest increase in nearly three years and far below the 196,000 forecast by economists. The unemployment rate fell 0.3 percentage points to 6.7%.

The year began on a good note for gold and it has performed well till date. Since the beginning of 2014, gold has rallied 3 per cent compared to its 28 per cent loss in 2013, which has been one of the worst performing years for gold.

Although gold is consolidating in the $1,215 to $1,250 range, my technical view sees that internationally the metal is a sell into rallies. The FOMC minutes from the December FOMC meeting, released Thursday morning IST, provided little information that the market has not already priced in. Therefore, ETF holdings have likely to continue their downward trend for the time being while the Fed slows its asset purchases.

The current market trend seen in the first two weeks of 2014:

Global ETF holdings keep falling, losing another 2moz in the last three weeks to reach 56.9moz. - The world's largest gold-backed exchange-traded fund, New York's SPDR Gold Share, reported its first outflow of 2014, of 1.5 tonnes, taking its holdings to a 5 year low of 793.21 tonnes

Meanwhile SGE volumes have picked up ahead of Chinese New Year on 31 January. Trading volumes on the SGE, a physical platform, have also picked up. Volumes hit an eight-month high on Monday, but the buying pace has now slowed from that peak The Chinese New Year, which will be celebrated on Jan. 31, typically prompts a spurt in bullion purchases as the precious metal is bought for good fortune and given as gifts. Premiums for 99.99 percent purity gold on the Shanghai Gold Exchange (SGE) climbed to over $20 an ounce this week, up from single digit premiums late last year. 

Indian premiums over spot remain high and will likely continue until the end of the wedding season in Feb­ruary or until the Indian government brings about a change in policies

Meanwhile, Ben Bernanke, who steps down as head of the Fed at the end of January, gave an upbeat assessment on Friday of the U.S. economy in coming quarters, though he did temper the good news in housing, finance and fiscal policies by repeating that the overall recovery clearly remains incomplete.

Gold support is at $1,233 and $1,227. Resistance is at $1,262 and $1,275.

Silver support is at $19.30 and $19.75. Resistance is at $20.42 and $20.54.

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 -

"Precious Sweet Revenge- Whats Next??"

http://www.riddisiddhibullionsltd.blogspot.in/2014/01/precious-sweet-revenge.html