IS THE GOLDEN EGG ABOUT TO HATCH?

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

This week gold was up almost two per cent - giving it the largest weekly gain in five weeks. Initially gold was almost unchanged for the week,  until the jobs report was out. Post the US Jobs data, gold rose on Friday, after they stated that job creation slowed  over the past two months. This created waves of speculation in the market that the Federal Reserve will not taper its current stimulus. 

Last week the Fed had released a statement that they will further taper its monetary stimulus program but given the slowing economic momentum, investors believe that this tapering will not take place in the near future.

Despite the slight fall in unemployment, the market's reaction to the low employment numbers was enough to pull up the prices of gold and silver. Other commodities prices and the major stock markets also rally.

Following gold, silver too was up nearly 5 per cent this week. This is the biggest weekly gain since mid-August.

Platinum also posted small gain for the week on supply worries due to a possible strike in south Africa. However, latest news about government-brokered talks between the world 3 largest platinum producers and the mine union AMCU (Association of Mineworkers and Construction Union). The talks were to end a two week wage strike. Speculations regarding the strike caused the upward movement of platinum prices. Platinum was trading up 0.5 per cent at $1,378.50 an ounce.

For gold, following were the factors responsible for the gains-

1) Tumbling world currencies

2) Tumbling assets in emerging markets

3) Disappointing US Jobs data- Data showed U.S. employers hired far fewer workers than expected last month—nonfarm payrolls rose by 113,000, well below the consensus of 185,000—although the unemployment rate hit a five-year low of 6.6 percent.*

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4) World Stocks- European stocks bounced back after an immediate negative reaction to the data, which is seen as a key gauge of the U.S. labour market

5) High demand for gold from China on account of the Lunar year

China returned to the physical gold markets strongly on 7 February, after a week-long break, as banks and retailers moved to replenish stock following solid sales during the Lunar New Year holiday. An increase in premiums and trading volumes on The Shanghai Gold Exchange, indicated that jewellery and bullion sales during the new year holiday were robust in the world's biggest gold consumer.

Shanghai premiums for 99.99% purity gold climbed to $11 an ounce over London prices. They hovered at about $4 on 30 January just before China went on holiday. Trading volumes hit their highest in a month.

While in India, premiums fell to between $70 and $75 an ounce on 7th February, compared to $80 last week, owing to the higher availability of imported jewellery and smuggled goods.

Premiums across the rest of Asia remained largely stable.

Gold is expected to range between Rs.29,000- Rs.31,000 in the domestic market and $1231 to $1278 in the international market whereas silver is expected to range between Rs.43,000 to Rs.46,000 and $19.30 and $21.00 in the domestic and international markets respectively.

 Recent data covering the speculative positioning by hedge funds still points towards short covering as one of the main driver behind the current strength, but until a sustained break emerges, many traders will still be viewing higher prices as good entry levels for selling the market. 

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 - "Pause - Gold Price Rally"
http://riddisiddhibullionsltd.blogspot.in/2014/02/pause-gold-price-rally.html


*source-tradingnrg.com

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