Pause - Gold price rally!

Gold price rally has taken a pause for the first time this year. Fed’s stimulus cut and Chinese New Year holidays have created a major impact on the yellow metal prices.  

                                     

         

Fed expectedly tapered $10 billion to $65 billion a month, second such move by central bank to cut back on the stimulus program. In a unanimous decision at the meeting the move was taken, saying labour market showed further improvement and household spending, as well as investment had advanced more quickly in recent months. What followed with this announcement was the rise of bears. Gold fell around 2 percent on Thursday, its biggest one-day drop in more than a month. Signs of faster U.S. economic growth have increased bets that the Federal Reserve would look forward to end the QE3 programme as soon as possible. Moreover when you do not have the largest physical buyer in the market, finding some support is obviously difficult. It shows how much important is Chinese demand for Gold. This was supported by sharp emerging market sell off, which had boosted gold prices earlier this week, hitting gold's safe-haven appeal.

Gold ETF flows were pretty mixed, with the SPDR GLD holdings rising 2.1 tonnes, while ZKB holdings fell 1.9 tonnes and Deutsche Bank's ETF lost 970 kilos.

I did note that U.S. economy grew by a respectable 3.2% annualized in Q4 but the reduction of China’s HSBC Final Manufacturing PMI data to 49.5 in January and Manufacturing PMI to 50.5, indicates that the global economy is still fragile. Nevertheless, as the stock prices stabilized and the emerging countries vowed to stem the currency panic, the U.S. Dollar rallied while the gold prices fell. The U.S. dollar strengthened and the S&P 500 stock market index rose more than 1 percent after data showed that robust household spending and rising exports have supported US growth.

In other precious metals, platinum fell nearly 2 percent, tracking losses in gold.  Platinum mining in South Africa, which accounts for 70 percent of global supplies of the metal, has been curbed since the Association of Mineworkers and Construction Union called its members on strike on Jan. 23 at Anglo American Platinum, Impala Platinum Holdings Ltd. (IMP) and Lonmin Plc. (LMI) The AMCU is dominant in platinum, with more than 70,000 members, and is demanding that basic wages be more than doubled to 12,500 rand a month. Talks aimed at resolving the dispute resume tomorrow, in Pretoria. While the negotiations have failed to achieve “tangible progress,” the companies and the union were pursuing a settlement, AMCU treasurer Jimmy Gama said. Even with all this, metal drew little support from the news that South Africa's AMCU union had rejected a 9 percent wage offer from leading platinum producers.

As expected the bears started to take the overhand in Silver during the same sell off. It touched a low of 19 USD levels, which had been the lower band since November. It does act as a major support for the metal.

Despite Thursday's pullback, gold was still 3 percent higher year to date. Gold has outperformed the S&P 500 by 10.2% this year. 

The Emerging market’s currency sell off that happened this week makes me think that the need for alternative currency will never diminish. With a weaker currency, Governments across the world are trying to boost their economic growth wherein lower inflation levels eventually grow when the monetary debasement continues. This leads to devaluation of local currency and in turn Gold prices shoot up in local markets as people look forward to protect their wealth in this alternative currency. This phenomenon is slowly but steadily being witnessed across various countries around the globe and specially emerging markets.

For the first week of February, we need to watch out for US ISM Manufacturing PMI on Feb 3, US ADP Non-Farm Employment Change and US ISM Non-Manufacturing PMI on Feb 5, the U.K. and the ECB monetary policy decisions on Feb. 6 as well as the January U.S. non-farm payrolls and unemployment rate on Feb. 7.

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 - "THE YELLOW METAL IS ALL GOING GREEN"

http://riddisiddhibullionsltd.blogspot.in/2014/01/the-yellow-metal-is-all-going-green.html

THE YELLOW METAL IS ALL GOING GREEN

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

In 2008, when the financial crisis rattled economies, investors inevitably resorted to the perceived safety of gold - and its price escalated from $800 to $1900 an ounce. This, in turn, accelerated the exploration for yet more gold. And gold became the most sought after metal. But in 2013, gold plunged 28 percent, the most since 1981, amid a U.S. equity rally to a record and speculation that the Federal Reserve will scale back monetary stimulus.

There were quite a many investors who abandoned gold and wrote it off. They declared that gold was ready for a bear market and that it has lost all its glitter. But the ones who are still loyal to gold hold a strong belief that gold will shoot up this year and perform well. I think gold is all set to prove this true.

This month, gold has jumped 5.2 percent. The losses in equities market has once again shifted focus from financial markets to bullions. This week gold saw a 5 per cent gain- thanks to equities. 

A global fight from emerging markets and declines in equities increased gold status as a safe haven asset and it rose to a two month high on Friday.

Fluctuations in the currency markets led by  plummeting Argentina peso and Turkish Lira prompted investors to buy gold.

This was not the sole reason behind the yellow metal prices going green.

- The options market expires next Tuesday, on 28th January. Buying sentiment behind this expiry has pushed gold prices higher.

- Also, the market has seen a big inflow for the so-called gold spider ETF. Recent inflows are also encouraging. Gold ETFs on Friday scored their biggest daily inflow since October 2012.

- The Chinese lunar new year is also playing its part for physical metal demand, as customers are rushing in to grab the metal at a cheaper price. The Lunar Year holiday will start next Friday (31st January) but gold dealers in China have made their purchases well in advance. Increasing demand for coins, bars and jewellery has pushed up gold prices.

- There are talks in the market that the government may relax certain import restrictions. Gold shot up and after murmurings that the punitive taxes on gold in India may be reduced. Congress party chief Sonia Gandhi has asked the government to review tough import restrictions on gold, which include a record 10% import duty.This will result in higher demand for gold and may push prices further.

- Also we see many investors shuffling their portfolios in January after what they have witnessed the year before. In Jan 2014 we saw that the equity market has not given satisfactory returns hence many investors are again allocating major chunk to gold and other precious metals.

- The world has a picture that banks have been selling off gold. But what came as a shock to the market that Germany failed to get its gold back. On January 16, 2013 Germany’s central bank, the Bundesbank, said it will ship back home all 374 tonnes it had stored with the Banque de France in Paris, as well as 300 tonnes held in Manhattan by the US Federal Reserve, by 2020. the Germans have managed to bring home a paltry 37 tonnes of gold.

And a mere 5 tonnes of that came from the US, the rest from Paris. The Fed holds 45% of the total 3,396 tonnes German gold. Now what conspiracy lies behind this pull back is certainly unclear.

Meanwhile, A quiet Monday, following Martin Luther King day in the US saw most interest in Platinum trading, which was driven to a high of 1473 USD per ounce by the AMCU calling also for strikes at Impala. - First day of the week. A strike at South African platinum mines paralyzed the world’s three biggest producers of the metal for a second day as talks to resolve the dispute over pay broke up until Jan. 27. Nearly 70,000 employees downed tools at Anglo American Platinum Ltd., Impala Platinum Holdings Ltd. and Lonmin Plc mines, where 70% of global platinum is produced. Hence, Platinum is 6% higher this month. 

While the yellow metal may take a back seat to other asset classes this year, but strong physical demand will sustain elevated average price this year. 

But investors have to be “cautious and quick” in taking profits because if the FED announces further tapering of its bond-buying program at its meeting next week, the dollar could soar, which could be a bearish sign for gold.

Nonetheless, momentum is still pointing up for now.

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 -

"Up Down- Gold Price trend Unclear"

http://www.riddisiddhibullionsltd.blogspot.in/2014/01/up-down-up-gold-prices-trend-unclear.html