PRECIOUS METALS....INDEED PRECIOUS!!!

by Mr. Prithviraj Kothari, MD, RSBL

Ever since I have started my blog, you must have noticed that I first analyse the international markets and then the domestic markets. But since this week was an important and crucial week for gold in Indian market, as it was the newly formed government's first budget since election, I would like to glance through the domestic markets first.

The previous government had over the past two years raised the import tax on gold to 10% from 2% and mandated that 20% of imports had to be re-exported to stem a slide in the value of the rupee and narrow the current-account deficit. There were widespread expectations that some reduction in the import duty would be announced in the Budget. Traders expected at least a 2-4 per cent cut of import tax on gold. Also, some relaxation in the 80:20 scheme that was imposed by the Reserve BANK of India (RBI) last year, was expected.

But traders were left astonished as India's new government left import taxes on gold unchanged in its annual budget. Premium on gold had disappeared in the last two weeks on expectations that the government would relax restrictions on imports as India's current-account deficit more than halved to $32 billion last fiscal year.

After Finance Minister Arun Jaitley concluded his budget speech on Thursday, gold in India climbed $30 above the international price of $1329.50 an ounce. Indian gold futures jumped 2% on Thursday, widening the premium over global prices which had narrowed on the duty cut expectation.

Simultaneously, we saw gold prices zooming in the international markets too. Factors for the same were:

EU Data:  Gold rallied on sliding European equities and a weak euro zone industrial output data. Given the recent weak economic data coming out of the European Union, traders will be closely watching European bond yields, for clues on European investor confidence. The European Union sovereign debt crisis is not that far removed from the market place. 

Chinese Data: Chinese trade data was much below expectations. China’s exports grew by 7.2%, year-on-year, in June, which was below market expectations of a 10% rise

Portugal trouble: There were reports that a major bank or banks in Portugal are in trouble. Europe's stock markets suffered heavy falls on Thursday as troubles at Portugal's largest listed lender, Banco Espirito Santo (BES), sparked fears of a possible return to the dark days of the euro zone debt crisis. Banco Espirito Santo SA sought to calm investors after a parent company missed payment on short-term notes. 

Middle East tensions: Middle East tensions escalated as Israel this week launched a military offensive on the Gaza strip. Heavy fighting too was reported overnight. This once again focused traders attention on the Middle East. At least 78 Palestinians, most of them civilians, have been killed. This situation is a potential time bomb that could further incite unrest in other parts of the Middle East.

Ukraine's fight back: Ukrainian forces regained more ground but sustained further casualties on Thursday in clashes with separatists, while two Western allies urged Russia's Vladimir Putin to exert more pressure on the rebels to find a negotiated end to the conflict. Russia threatened Ukraine on Sunday with "irreversible consequences" after a man was killed by a shell fired across the border from Ukraine, an incident Moscow described in warlike terms as aggression that must be met with a response.

FOMC Meet: The market place has pretty much digested Wednesday afternoon’s FOMC minutes from June. They further stated that the Fed is on track and to end its monthly bond-buying program (quantitative easing) in October. Further there was no specific sign as to when the U.S central bank will start to raise interest rates but there were definitely expectations in the market that it won't take place this year and this sentiment was further reinforced by Wednesdays latest FOMC minutes.

After analyst downgrades of gold that we've all heard over the last year, money is now pouring into the metal at the slightest bit of unease.

The value of the gold funds rose by $5 billion this year as prices rallied 10 percent. The metal has rebounded from last year’s 28 percent plunge that was triggered by muted inflation and as investors shunned the metal in favour of equities. The Hedge funds and money managers increased their bullish bets on Gold by 7,344 lots to 14,272, the highest since March, in the week to July 8. In Silver, they raised their bullish bets by 7,819 contracts to 44,517, a peak since December, according to the data from the Commodity Futures Trading Commission on Friday.

For now, Gold’s performance has proven the bears wrong so far this year. The bulls are being rewarded.

Following the market consensus that had recently emerged, LBMA announce that CME group and Thomson Reuters have been selected to provide the solution for the London Silver Price Mechanism.

TRADE RANGE:

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1324-$1367  per ounce	Rs.28,000-Rs.29,000 per 10gm
SILVER	$20.90- $22.00  per ounce	Rs.45,500- Rs.47,500 per kg

- Previous blog -

"Geopolitical Cover for GOLD"

Link it to: http://www.riddisiddhibullionsltd.blogspot.in/2014/07/geopolitical-cover-for-gold.html

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