Geopolitical cover for GOLD!

                                                        - Mr. Prithviraj Kothari, MD, RSBL

Till 2012, gold was considered as the highest return generating asset in its class. From December 2008 - June 2011 bullion climbed 70 per cent as the Fed bought debt and held borrowing costs near zero percent to spur economic growth after the recession. Prices ended the 12-year bull run last year as inflation remained low and on concern that the U.S. central bank would slow the pace of monetary stimulus.

Lately gold has been abandoned by many as investors seem to be captivated by other assets like equities. The equity market continues to attract money as people expect that the economy will improve further.

Though gold has risen lately, many investors believe that this price rise won't last for long and any easing of the geopolitical tension would bring gold prices down. It was these tensions that gave gold the all needed boost at the beginning of the week. Gold prices jumped 6.1 percent for the month, while recording a gain of 3 percent for the quarter ended June.

Gold was up on Monday and climbed to a three-month high on Tuesday as a softer dollar and escalating violence in Iraq increased the metal's appeal, boosting inflows into the top bullion-backed fund. Spot gold climbed to $1,332.10 an ounce, its highest since March 24 during the trading hours.

Post the release of employment data, gold tumbled as the nonfarm payrolls data was much stronger than expected. This data was released on Thursday as Friday was a holiday. The U.S. Labor Department said the U.S. added 288,000 jobs in June, with the unemployment rate falling to almost a six-year low of 6.1%. The headline figure was sharply above the consensus estimate of slightly more than 200,000 new jobs, while the jobless rate fell 0.2 basis point from last month’s 6.3%.

In addition, the government upwardly revised the May job figure to 224,000 from 217,000 and April job gains to 304,000 from 282,000.Wage gains remained as expected, up 0.2%, and the labour-force participation rate was also flat at 62.8%. US jobs data released Thursday supplied evidence that the country's economy is growing, with the unemployment rate nearing a six-year low.

As U.S. markets were closed in recognition of Independence Day, investors will have to wait until after the holiday long weekend to determine the full impact of Thursday’s much better-than-expected nonfarm payrolls report.

On Friday, gold prices rose as they were reinforced by mixed European shares and tensions in Iraq and Ukraine. But data indicating that the US economy is strengthening may soon reduce demand for the precious metal.

The yellow metal has benefited from its traditional haven status in recent months. However, when geopolitical tensions ease, less-committed investors are sure to exit; and one can expect gold to return to its downward trajectory witnessed since April last year.

Moreover, demand from two of the worlds largest consumers of gold has dampened in the recent months with slowdown in Chinese imports as well as continuing lacklustre performance by India. Customs duty of 10 per cent ad valorem and export obligation (80:20 scheme) have discouraged gold imports into India.

Meanwhile, a Bloomberg report indicated gold shipments into India may have plunged 77 percent in the first half amid government restrictions such as higher taxes on bullion imports.

However Modi’s government has hinted that it will relax some of the restrictions. Loosening those restrictions could help to revive Indian gold demand and further push gold prices higher. The next big event on the domestic front is the First Budget of the new government to go live on 10th July, 2014.

Meanwhile we expect gold and silver to trade in the following prices range:

METAL	INTERNATIONAL	DOMESTIC - RSBL BENCHMARK PRICE
GOLD	$1291 - $1345  an ounce	INR 27,500 - INR 29,500  per 10 gm
SILVER	$20.20 - $22.00  an ounce	INR 43,000 - INR 47,500  per kg

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 - "Halfway through 2014...But where is gold heading for??"

http://www.riddisiddhibullionsltd.blogspot.in/2014/06/half-way-through-2014but-where-is-gold.html

HALF WAY THROUGH 2014...BUT WHERE IS GOLD HEADING FOR?

                                                     - Mr. Prithviraj Kothari, MD, RSBL              

We are half way through 2014 and the market is still confused whether gold is showing bullish trends or bearish. But lately, gold has been behaving in such a pattern that it would be difficult for anyone to give "a" particular market trend.


                                  

At the beginning of 2014 it was the exorbitant demand for gold from China that kept gold prices high. Then came in the deteriorating weather conditions in US and political uncertainty in the Euro Zone that kept pushing gold prices even higher. Come in March and the tables tuned for the yellow metal. Gold prices dropped over developing US economy and statement released by the Fed that they may end the massive bond buying program by the end of 2014. Then came in the Ukraine crisis which proved to be vital for gold. May was once again a bumpy ride for gold as it was pulled between the escalating tensions in Russia on one side and a positive US economy on the other.

Simmering geopolitical tensions over Ukraine and Iraq have boosted gold's safe-haven appeal so far this year. Still, analysts are bearish on gold's outlook because of possible dollar strength, an equities rally and tame inflation.

Last week gold posted its biggest weekly rise in three months as the threat of escalating tensions in Iraq and the Federal Reserve's lack of commitment to raising interest rates sparked a wave of short covering

The recent crisis occurring in Iraq has boosted gold prices. Sunni tribes have joined a militant takeover of northern Iraq. Oil prices were pushed to 9-month highs last week, with a consequent knock-on effect on gold.

For a better analysis of gold prices movements over the week, I have given gold's performance on a daily basis below.

MONDAY- Following previous weeks trends, this week too, gold began on a positive note due to weak US equities and increasing violence in Iraq. Gold was hovering around $1321.90. As Iran's supreme leader accused the United States on Sunday of trying to retake control of Iraq by exploiting sectarian rivalries and as Sunni insurgents drove toward Baghdad from new strongholds along the Syrian border, we saw gold extending last week's 3 per cent gains over these issues.

TUESDAY- Following suit, Gold hit a two-month high on Tuesday since mid-March as a drop in European shares after soft German economic data and a weaker dollar helped the metal build on last week's gains. Spot gold hit a peak of $1,325.70 and was up 0.5 percent at $1,323.80 an ounce during the trading sessions.

WEDNESDAY- Gold fell on Wednesday as physical buying dried up after prices jumped to their highest level in two months in the previous session. Gold dipped $3.31 an ounce to $1,314.29 after rising to $1,325.90 on Tuesday, its strongest since April 15. It has gained 9 percent so far this year.

THURSDAY- Gold fell on Thursday as upbeat U.S. jobless claims data and weaker crude oil prices sent prices below a two-month high hit earlier this week. Another report on Thursday showed the number of Americans seeking unemployment benefits fell again last week.

Gold's appeal as a hedge has definitely declined as the market is under a strong belief of an expanding economy. Recent gains in gold were mainly motivated by short covering as speculators aggressively bought back their bearish bets. Fed President James Bullard stated that the interest rates increases could happen soon. This further got gold prices under pressure. Also negative, was a drop in crude oil prices as fears eased over export disruption from war-ravaged Iraq.

FRIDAY- Friday too, gold prices declined. Nearly flat US equities and a slightly lower dollar failed to inspire gold, when data showed US consumer sentiment rose in June as consumers remained optimistic and the sluggish first quarter was due to difficult winter conditions.


Traders warned that bullion could see some additional choppy trading amid concerns over weak imports in top consumer China. Hong Kong released import/export statistics, which showed a drop of net Chinese Gold imports to 52.3 tons, which is the lowest number since January 2013. China's total gold imports from Hong Kong dropped 17 percent to 67.233 tonnes in May from 80.817 tonnes in April, according to data emailed to Reuters by the Hong Kong Census and Statistics Department.

There are several factors that could affect this number:

• The rising gold prices have dampened the demand for gold
• The ongoing talks about trade finance, where Gold was apparently used in the past to borrow cheaper currency
• A liquidation of Gold as collateral
• Direct Gold imports into China are said to be growing, as there is no Chinese official data released such imports would be difficult to track.

Moreover, India has witnessed a weak start to the monsoon. This may curb the domestic gold demand, as 70 per cent of the gold demand in India comes from the rural areas that are dependent on agriculture as its main source of income. The majority of Indian gold purchases are made in the agricultural sector, and a good harvest typically raises income levels and translates into greater bullion demand. We still await July and August and hope for better monsoons.

Meanwhile we expect gold and silver to trade in the following prices range:

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1293 - $1340 an ounce	INR 28,000 - INR 29,500 per 10 gm
SILVER	$20.40 - $22.00 an ounce	INR 44,000 - INR 49,000 per kg

- Previous blog -
"Iraq to Ukraine- Safe Haven Boost"
http://www.riddisiddhibullionsltd.blogspot.in/2014/06/iraq-to-ukraine-safe-haven-boost.html