BAD NEWS PROVES TO BE GOOD FOR GOLD

                                                       - by Mr. Prithviraj Kothari

I was awaiting this...gold bouncing back from its lows last week. As expected, gold crossed the $1300 mark on Friday.

Bad news turned out to be the good news last week for gold. A higher unemployment rate and worse than expected job creation is the bad news that has proved good for gold.
Throughout the week gold was lying low, but on Friday post the release of the US jobs report, gold managed to cross $1300. (future delivery)

The US jobs report were not as strong as expected. Though they were decent, but the market came off with a strong belief that the Federal reserve won't become any more aggressive in scaling back its accommodative monetary policy.

Now let's see what exactly the jobs report was all about.

Labor Department data showed private employers boosted hiring to 192,000 jobs in March, just a shade below analysts' average estimate of 195,000 net new jobs. The government reported that nonfarm payrolls rose by 192,000 in March, when expectations had been for 195,000 to 200,000. Job gains for the prior two months were revised higher by a combined 37,000. However the US jobless rate remained unchanged from February at 6.7 percent as the number of unemployed held steady at 10.5 million.

Before the jobs report was out, Analysts believed that that positive jobs data means the US Federal Reserve will likely continue cutting each month the amount of monetary stimulus it injects into the economy. But that did not happen. Markets now expect the Fed to begin raising its ultra-low interest rates in the middle of next year.

The jobs data prompted some short covering along with fresh buying, as (traders) were looking for a little better report than they got. Some traders were buying to offset, or cover, positions in which they had previously sold.

Yellow metal finds its support in the simmering geo political tensions in Ukraine and the reduced curiosity about the Fed's tapering.

Earlier in the week, Fed Chair Janet Yellen provided a relatively dismal outlook of the labour market and said she and other committee members believe “extraordinary commitment is still needed and will be for some time.”

Prices for the yellow metal also got a boost from sustained consolidation in the stock market and it saw a little extra benefit due to the fact that it was a bit oversold after a few weeks where gold was lying low.

In the Asian markets, precious metals fetched a premium in Shanghai's trade as compared to London for the first time since March. This saw demand rising from top buyer China, on Wednesday.

Prices for 99.99 percent purity gold on the Shanghai Gold Exchange hit a premium of about $1 an ounce to spot prices in London before paring gains. Shanghai prices had traded at a discount of between $8-$10 to London gold since March. Before this week, the last time they were at premium to London was in January, when Shanghai prices fetched a premium of about $20 or more an ounce on ramped up demand for gold before the Chinese New Year holidays.

Amongst other precious metals, platinum rose to $1432 an ounce, a rise of one per cent and palladium gained 1.2 per cent an ounce on continued worries over supply constraint and positive US car sales.

As the Anglo American Platinum said that it has sent out force majeure motives on its supple, which underscored the impact of a near 10-week old workers strike on the leading platinum producer. It's been 10 weeks since the AMCU members have been on strike at the platinum mines. there are 70.000 members of the AMCU that have been in strike. These 70,000 workers account for more than 70 per cent of the platinum production. the AMCU has been on strike since 23rd Jan, at the Impala, Anglo American Platinum  ltd. and Lonmin Plc. Due to disruptions in operations the companies have lost more than 10.3 billion rand in revenue and workers 4.6 billion rand in earnings. This has resulted in pushing the platinum prices higher.

On the other hand, gold, in the coming week, is expected to range between $1277 and $1230 an ounce in the international markets and Rs.28,000- Rs. 30,000 on the domestic markets.

While silver is expected to range between $19.20 to $20.55 and Rs 42,000 to Rs. 46,000 per kg in the international and domestic markets respectively.

The primary purpose of this article by Mr. Prithviraj Kothari is to educate the masses of the current happenings in the Bullion world.
- Previous blog -
"Is it the right time to buy gold, silver platinum?"
http://www.riddisiddhibullionsltd.blogspot.in/2014/03/is-it-right-time-to-buy-gold-silver.html

Is it the right time to buy Gold, Silver & Platinum?

No doubt this had to be the blog for the week. Precious metal prices have been rocketing down for the entire week.

Let’s first focus on the reasons for the price fall:

1.    FED’s QE3 is being unwound at a steady pace. Tracking the improving US economic conditions, FED might even increase the pace of tapering.  QE was responsible to set record highs for gold and the same is the reason for its downfall in 2013.

2.    Ukraine turmoil had given the much necessary support to safe haven buying assets like Gold where the prices were on an upward spiral. As the turmoil continues to unwind itself and most of the news being discounted by the market participants, the support is slowly fading away.

3.    Physical demand is a concern. Bloomberg had reported that Iraq had increased their Gold reserves by a massive 36 tons in March and IMF data showed that Turkey was back increasing their Gold reserves by 9.3 tons in February. Hong Kong Trade Statistics showed a strong month of Chinese Gold imports for February, which were a net of 109.2 tons, which was 30% more than January and 80% more than the previous year. When I had seen these stats, I did feel that the physical demand is holding strong to support the Gold price fall. But frankly, Turkey or Iraq aren’t the main supporters for Gold. Undoubtedly it has been the show of Asian countries and majorly China. Now to track Chinese physical demand, I take support of SGE premiums. When the prices fall, SGE premium is the first one to go up, while that has not been the case lately. SGE premiums have been locked in a negative territory or hardly minutely up despite Gold price fall from $1390 to $1290 in a span of 2 weeks or so. Due to this I feel that once March data is released, it is likely to show a decline in imports relative to February numbers as SGE premiums were in positive range for most of the time in Feb.  With SGE premiums mostly in negative to hardly anything, it would have been less attractive to import metal. Even the But as the economic uncertainties increasingly looming over Chinese banking sector through shadow banking issues, I feel their physical purchases would dampen a bit.

4.    On the domestic front, Gold and Silver prices are dropping faster than its dollar denominated counterparts. Rupee has appreciated considerably when compared to dollar over the past few weeks. This has led to downfall in gold prices. Indian government and RBI had to take tough decisions over the past year and now the results are paying off. With the CAD in control, Indian economy is looking to improve from here on. Due to which investors are regaining their faith in India and investments are gradually increasing.

5.    Silver prices are more or less dragged along with Gold prices. With regards to platinum, the AMCU does not seem to be willing to accept less than double salaries, as it announced it would give Platinum producers one year extra time to adjust the wages and would only then return to work

My take on Gold prices in dollar terms will be in the range of $1180-$1400 i.e. INR 26500 to INR 32500. I feel this is the range that the investor should keep in mind while buying Gold.

My take on Silver prices in dollar terms will be in the range of $18.50-$23.50 i.e. INR 41000 to INR 47000. I feel this is the range that the investor should keep in mind while buying Silver.

Like others I do feel that if overall the economy improves than the downward journey for precious metals will continue. But like others, I feel the below given reasons will always play a crucial role in providing returns to the investors who trust on Gold and other precious metals.

1.    With the upcoming elections in India and CAD in control, I do expect that the new government will surely take some steps to boost the R&D for mining Gold in India as well as provide some relaxations in Gold import policies. If that happens, Asian demand will get a boost from India. But government policies will play a key role as they know the best when it is about deciding the best for Indian economy.

2.    As the prices head lower, I am sure that the physical demand will improve drastically world over and not only China because everyone knows that Gold is the only asset that can be taken into account during any economic turmoil.

3.    Gold will always play an important role in geopolitical conflict situations and economic uncertainties.

4.    As the prices continue to spiral down, mining industry will face hurdles to operate in low margin or no margin environments. If that is taken into consideration, I feel that their operational costs will rise more than the income they generate from mining creating the necessary closure of mines as it will be difficult to stay in business in such conditions.

5.    Silver and Platinum continue their downfall as they are more or less dragged along with gold prices. But as the economy improves their use in industries across the world will continue to rise and in turn increase their demand and prices.

6.    The bubbles created by money printing and market manipulation - not just in the U.S., but the entire world has never been universally unbacked, nor government intervention so widespread. This has not been seen over the years and the stimulus programmes have led to gigantic balance sheets of central of banks of the world under the word: “Economic Development”

Gold has always stood by one and all when it comes to economic uncertainties. But with Central banks and governments trying their best to revive their economies, Gold is loosing its investment appeal to some extent, as investors look for short term benefits.

I feel buying physical Gold, Silver and Platinum should be on cost averaging basis. It has been a successful strategy since the bull year began, though it would be a bit strange for the investors who started investing in the last couple of years.  I am sure Gold or for that matter any precious metal investments would always give best returns if considered as long term investment options and something that you can bank on in financial instabilities.

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 - "GOLD GOES ON A BUMPY RIDE"
http://riddisiddhibullionsltd.blogspot.in/2014/03/gold-goes-on-bumpy-ride.html