THE CHANGING CHINA

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

Amidst all the chaos that has happening at the Global level, I feel we should just relax a bit and understand what gold is really up to. At the current levels, it would be tough to make any short term predictions from Gold or Silver price levels. But lets take a recap and try to work out something...

The yellow metal price by the end of 31st Dec, 2013 ended a 12 year rally which saw trading below $1200.This decline was driven by low interest rates and certain steps taken by the global central banks to foster the world economy. 

But in 2014, gold showed a remarkable re-bounce and touched 1327$ an ounce this week. On Tuesday, gold reached 1332.10, its highest since October. Last week gold gained four percent and this week it followed suit. Thursday too saw gold moving up as dollar gave up gains. By Friday, gold was seen gaining for a third consecutive week on uncertainty over the stimulus measures. 

Gold rallied to a three and half month high earlier this week after reports stated that US economic indicators were disappointing. A report showed that existing US home sales fell more than expected to an 18 month low in January. This sparked speculation that the Federal  Reserve might slow the tapering of its bond purchases.

Expectations that US Federal Reserve would maintain the pace of a withdrawal of monetary stimulus may diminish gold's investment appeal as a hedge against inflation. 

Apart from the FED's QE3 uncertainty, there are various factors that influence gold prices. The general global investment factors, or monetary policy or economic strength. The move to raise the US debt ceiling limit to unspecified limit until next year March will surely support Gold prices.  But lately, the most important factor has been the Chinese demand for gold. This has held up gold prices strongly. The Chinese demand for gold has helped in boosting gold prices at a time when the Fed's monetary stimulus measures have been driving down the prices and the global economy is showing signs of recovery.

Till last year, India was considered the largest consumer of gold worldwide. But according to the World Gold Council, in 2013, China overtook India as the largest buyer of gold. In fact China imported 1066 metric tonnes of gold as the demand for gold bars, coins and jewellery soared 32 per cent to a record high.

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2014, has just begun and China has already imported exorbitant quantity of gold. This year, the World Gold Council expects China to remain the world’s largest consumer of physical gold. While down slightly from last year’s record level, the research body projects China will still gobble up a robust 1,000 tonnes to 1,100 tonnes of gold in 2014. 

Till 2002, Beijing had barred its citizens from owning gold bars and coins. Even though gold appreciated for a long time in china, the citizens were not able to use it to that extent. but once the government lifted restrictions on gold ownership the Chinese rushed to buy gold and this gave a boost to gold prices.

Moreover, as an economy china has witnessed speedy development. This has also resulted in higher spending power as incomes have risen. Generally, people buy gold as one of the safest forms of investment and also include gold in their portfolios. And given that till 2012, gold has given the best returns in its asset class it's obvious that people are tempted to own it.

The same has happened in China. Though gold dropped almost 25 per cent last year, demand for it from China did not drop and this kept the gold prices moving.

Meanwhile in India, duty on gold that had been levied to rectify the current account deficit has been the major factor for a decline in demand as the precious metal is being sold at very high premiums making the yellow metal even more dearer. The interim budget did not have any changes with regards to Gold import policy or import duty cuts. Gold premium over international price jumped USD 30 on that day.

According to Bloomberg, Silver had its longest daily straight gain since more than 40 years on 18th Feb, after moving higher for 11 consecutive days from 19.08 on 3rd Feb to close at 21.83 on 18th Feb.

Seeing strong physical demand from China and US disappointing economic data, I do feel that Gold price should hover between $1307 to $1360 in the international market whereas in the Indian markets it is expected to be between Rs.30,000 to Rs.31,500. Respectively silver is expected to range between $21.05 and $23.10 and Rs.46,500 and Rs. 48,500.

*goldsilverworlds.com

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 - "Let's Get Gold"
http://riddisiddhibullionsltd.blogspot.in/2014/02/lets-get-gold.html

LET'S GET GOLD !!

-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