-By Mr. Prithviraj Kothari, MD, RSBL (RiddiSiddhi Bullions Ltd.)
Look in to the past- it was Feb 2013....Look in to the present- it is Feb 2014- Gold has risen 11 % since the beginning of the year....
Gold has shown some remarkable performances Since Jan-
1) Gold is up over 10 per cent since the 2013 closing lows
2)Gold crossed the $1300 mark for first time in over a year
3) The $1300 mark cross over has made gold reach a three month high in the week
4) this three month high posted its biggest weekly gains since October 2013.
Just "a" particular cause cannot be held responsible for this-
- Weak US economic data
- Deteriorating weather conditions in the US
- Political uncertainty in the Euro Zone
- SDPR posting its biggest inflow since December 2013
- Rising demand for gold from China
All of the above mentioned reasons are somewhere, directly or indirectly responsible for the rally in gold prices.
By the end of the week gold received a good booster by the weak US economic data release. The report shows that U.S. retail sales fell unpredictably in January. U.S*retail sales fell 0.4% in January*
Adding to it, more Americans filed for jobless benefits last week. Initial weekly jobless claims rose by 8,000 to 339,000, missing forecasts for a decline to 330,000.
The ICE dollar index, which tracks the greenback against six other currencies,declined to 80.308 from 80.718 late Wednesday.
In all, the entire scenario gave a good push to gold prices. This weak economic development has once again raised questions over whether the world's biggest economy can sustain growth and made some investors hope the Fed would take a slower approach to tapering its bond purchases.
The disappointing U.S retail sales data weighed on the dollar, increasing the appeal for bullion, prices of which were sustained by the weak data releases from US as it reinforced the investors that Fed will take a slower approach to tapering its bond purchases.
Furthermore, extremely cold and unfavourable and unseasonable snowy conditions in US have hit the retails sales which has always been considered as a parameter to determine consumer spending. deteriorating conditions have also been a reason for a drop in sales.
Large parts of the United States have been gripped by freezing temperatures and snow storms, which caused investors to largely discount both the day's and other recent weak data that suggested the economy started the year on weaker footing.
shares in Europe dipped, as Italy was affected by the prevailing uncertainty that raised worries about efforts to turn around Italy's sputtering economy.
However hopes once again prevailed as the way was left open for center left leader Matteo Renzi to take over, once Italian Prime Minister Enrico Letta would tender his resignation.
Additionally, SPDR- world's largest gold backed exchange traded fund, posted its biggest inflow since late December 2013. Holdings rose 7.50 tonnes to 806.35 tonnes on Thursday,
This further strengthened investors sentiments.
While in China, consumer demand has always been rising and it has now overtaken India as the largest bullion consumer as it topped 1000 tonnes for the first time in 2013.
In the physical markets, bullion was also underpinned after India's trade ministry said it has recommended easing curbs on gold imports, after a 77 percent drop in imports for January that helped narrow the country's trade deficit.
During times of economic turmoil, gold has always enjoyed the status of a safe haven asset and has always had an inverse relation with equities.
But an interesting fact to be noted was that as gold performed well, equities too were on a rise.
Indeed the recovery in the gold price has coincided with a 0.5-percentage-point increase in the U.S. equity risk premium and a decline in U.S. real yields. This has been a favourable atmosphere for gold prices to rise.
Other precious metals are on the rise with Palladium up for the 8th day in a row (the longest streak since July), Platinum up 6 days in a row (long since July) and Silver up 10 days in a row breaking $20.50.
Gold’s gains in 2014 have been helped by soft U.S. economic data and emerging-market stress, but the metal’s strength may not last once economic data improve again.
The underlying notion that central banks are slowing down their quantitative easing is boosting gold's appeal as an inflation hedge and alternative currency.
Speculation that the Fed might hold off further reduction of stimulus had strongly supported gold by keeping interest rates at rock bottom while stoking inflation fears.
There is no surety of how well and for how long will these gold prices be sustained. A we head towards March, weather conditions in US tend to improve and can once again boos consumer spending. the rapid rebound in the S&P 500 over the past week would suggest that the sources of support for the gold price from a rising equity risk premium may be coming to an end.
Now we wait for March or rather lets march towards March !!
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 - "Is the golden egg about to hatch??"
http://riddisiddhibullionsltd.blogspot.in/2014/02/is-golden-egg-about-to-hatch.html
