GOLD TRAPPED?

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

Gold was choppy this week. It was seen moving sideways just before the payrolls data was released. Investors believed that a weak figure would mean that the economy is still fragile and this would underpin gold prices.

Geopolitical tensions in Ukraine have underpin gold prices this week. Spot gold is at $1,350/oz, down 40 cents from its previous close. Spot gold prices rose 1.2% overnight after U.S. President Barack Obama said that Crimea's referendum on seceding from Ukraine to join Russia is illegal and added that the U.S. and European Union are united against Russia's intervention in Ukraine. In case the situation worsened then gold prices are expected to rise.

But the actual scenario was completely opposite.

Gold plunged nearly 1 per cent after US data showed that job growth picked up pace sharply, thus ruling out fears of an economic slowdown. This in turn would meant that the Federal  Reserve would continue to taper its monetary stimulus.

Gold  closed 1% lower on Friday, suffering from their biggest one-day point and percentage loss in more than a week, after a closely-watched jobs report signalled stronger-than-expected employment trends, dulling the metal’s investment appeal.

The Labour Department said that the employers had added 1,75,000 jobs to their payrolls compared to 1,29,000 in January. The unemployment rate, rose to 6.7 percent from a five year low if 6.6 per cent as Americans flooded into the market to search for work. However, many believe that this data could not be valid up to a certain point because of the extreme weather conditions that prevailed last month.

Spot gold fell as much as 1.5 per cent to a low of 1329.35 an ounce and was last seen trading at 1338.09

An optimistic economic data creates such a sentiment in the market that people believe that holding safe haven assets in your portfolio is no longer feasible.

Compared to December and January, February's report was much positive than expected.

While some investors said the January and December reports were distorted by severe winter weather, others worried the weakness was indicative of a broader economic slowdown and would force the Federal Reserve to sustain its stimulus efforts for longer than previously thought. Instead, February's data showed improvement even though winter storms continued to pummel much of the Northeast U.S.

In the short term, what holds more importance than US data is that what happens in Ukraine. On Friday, President Vladimir Putin rebuffed a warning from US President Barack Obama over Moscow's military intervention in Crimea, saying that Russia could not ignore calls for help from Russian speakers in Ukraine.

The other factor that pushed gold prices down, was the data released from China. Data released over the weekend showed that Chinese exports collapsed 18.1% in February from a year earlier, disappointing expectations for a 6.8% increase. Imports rose 10.1%, compared to forecasts for an 8% increase. The significant decline in China’s exports led to a deficit of $22.98 billion last month, compared to a surplus of $31.86 billion in January. Analysts had expected a surplus of $14.5 billion in February.

A separate report showed that consumer price inflation in China rose 2% in February from a year earlier, in line with expectations, while producer price inflation declined 2%, compared to forecasts for a 1.9% drop. The downbeat data highlighted concerns about slowing growth in the world's biggest consumer of the industrial metal. I do feel that there are high chances that the numbers were distorted due to New year holidays observed by Chinese. Recovery should be on its way but we will have to wait for the next set of numbers for more clarity. 

Platinum was seen up for a consecutive week. It gained 2.6 percent, trading at $1477.2 while  silver fell 2.9 percent to $20.82    

In the week ahead, investors will be anticipating what will be closely-watched data on retail sales and consumer sentiment for further indications of the strength of the economy and the future course of monetary policy.

Gold prices are set to rise next week as the yellow metal's trend is expected to remain upward.

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 -

"2014- An Interesting Start Up For Gold"

http://www.riddisiddhibullionsltd.blogspot.in/2014/03/2014-interesting-start-up-for-gold.html

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