2014- AN INTERESTING START UP FOR GOLD

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

Whenever a slightest of hope arises that the global economy is on a path of recovery ...a jerk hits and turns this hope into a nightmare. But these people are surely giving gold and other precious metals a jerk in the upward direction.

Price trend of gold in 2013, compelled many investors to believe that gold was finally entering the bear market and that it was time to shift focus to other metals. Gold had bottomed in December 2013, reaching $1182. But by February 2014, gold has managed to gain 13% by touching levels of $1340. In February itself, gold has gained 7 per cent. This has been its biggest monthly rise since July 2013 mostly due to weak data in US and geopolitical tensions around the world.

This week too gold was up. On Monday, gold rose 1 per cent over uncertainty and geopolitical tensions going on in Ukraine. Under these uncertain scenarios, people have once again given gold the safe haven status that it has been enjoying since years.

Russian-backed president Viktor Yanukovich cast doubt on a bailout deal with Moscow, saying it needed $35 billion over the next two years. Acting President Oleksander Turchinov warned that Ukraine was close to default and heading into the abyss.

U.S. data on Friday showed fourth-quarter growth expanded at a 2.4 percent annual rate, down sharply from the 3.2 percent pace reported last month.

Gold steadied around $1,330 an ounce on Friday and was on track for its biggest monthly gain as persistent concerns about a slowdown in the U.S. economy hurt the dollar. 

But the Federal Reserve chairman, Janet Yellen, stated that the harsh winter weather was to be blamed for this slowdown and economy will soon improve once weather conditions get better.

In the previous two meetings, the Fed had trimmed its monthly bond purchases by $10 billion and is expected to do so in its next meeting to be scheduled on March 19.

The entire market awaits this meeting as the picture will get clear that is it the weather or something else that has to be blamed for a disappointing US economy. It is then that the Fed will be able to take a concrete decision regarding its tapering or it could even mean some loosening. The softer tone and the apparent readiness of the Fed to slow the pace of tapering have boosted both the gold prices and stocks.

Moreover, ETF gold liquidation has slowed down as the price has of Gold moved upwards. ETF gold holdings have been moving sideways since the middle of January. SPDR gold trust is stable at a holding of 803.70 tons. 

But what stole the show was Platinum, as prices reached a high of $1455, outperforming gold. As such the reports by Impala that given the ongoing strikes, it could meet guaranteed contractual deliveries only until the end of March and for the South African market until April which was already in the press and should be discounted by now.

The latest gold import and export figures from Hong Kong Census and Statistics Department, the special administrative region exported a net 83.6 tons of gold to the Chinese mainland in January. This figure may be less compared to export figures of December, but if we compare it to January 2013, it has been an exorbitant rise of 330 per cent.

Currently there are a lot of indicators for gold price movement-

- The US January core PCE price index

- The final February China HSBC manufacturing PMI

- The February flash PMI of the E18 in 3rd March

- The start of the Chinese NPC meeting on 5th March

-The monetary decision and announcements of the Bank of England and the ECB on 6th March

-The US nonfarm payrolls and unemployment rate of February slated to release on 7th March.

Political tension in Ukraine, uncertainty in Europe along with weak US data helped the price of gold due to increased safe haven demand. Next week should get more interesting data wise, as February numbers should come cleaner of winter effects.

Meanwhile, gold is expected to range between $1307-$1361 and Rs.29,500-Rs.31,000 in the international and domestic markets respectively. Whereas silver is expected to range between $20.55 to $22.00 and Rs.45000- Rs.48,000 in the international and domestic respectively.

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 Changing China"

http://riddisiddhibullionsltd.blogspot.in/2014/02/the-changing-china.html

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.

*

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