IS GOLD MAKING A COMEBACK?

by Mr. Prithviraj Kothari, MD, RSBL

Gold has fallen nearly 40% from its 2011 high above $1900 to reach below $1200 at the start of the week. A resurgent dollar, coupled with positive U.S. economic data, had been driving gold's declines over the past few weeks. Investors tend to withdraw from non-interest-bearing assets to seek higher yields elsewhere when the dollar gains.

But gold picked momentum in the past seven days. We finally saw gold catching a bid on global risk aversion. It has rebounded nearly 4 percent from the 15-month low of $1,183.46 it hit on Monday on heavy selling pressure that followed a better-than-expected U.S. payrolls report last week.

There were various factors responsible for the rise in prices-

• The end of QE
• Geopolitical uncertainty
• Falling global growth estimates

All these factors once again made gold a good prospect as a safe haven asset.

On the second day of the week, gold was up after the  International Monetary Fund cut its global economic growth forecasts and weak German industrial data stoked further concerns. Following this the dollar fell which further gave a push to gold prices.

Gold rose consecutively for four days marking its longest winning gain in seven months. In fact traders witnessed heavy short covering for gold rise over the Fed minutes which created uncertainty over the timing of a Fed interest rate rise.

*source- www.kitco.com

The minutes of their last policy meeting showed that they are still struggling to come to grips with the dual threats of a stronger dollar and a global slowdown and hence they were further uncertain about linking the interest rate rise to U.S economic progress. Equities further weakened on concerns over global growth mainly in China and Europe.

Gold prices bounced off 2014 lows this week after testing support around the $1,180 area, a price gold hadn’t seen since June and December 2013. Analysts said short covering, which is the buying back of previously sold positions, and the return of Chinese traders from their Golden Week holiday helped return the yellow metal above $1,200.

However, In India it's a different scenario this year. Last year the volumes were much high as people rushed to buy gold, when prices crashed. This year prices have been consistently low. Moreover, disappointing monsoons and continued import restrictions have also affected gold demand in India.

Now the market awaits movement in equities, dollar and crude oil which could have a major role in influencing gold prices. Also, gold-market watchers will keep an eye on the Indian market to gauge metal demand ahead of the Diwali holiday later this month. Apart from this, the market player will also watch the economic data that will be flowing in- China releases a slew of economic reports, while The U.S. will see inflation data with the producer price index expected to show falls in energy and food prices, reflecting the recent drop in commodity prices.

If the US equities market continue to drop then it could create a favourable position for gold but if investors flush in more money into equities keeping the "buy on dips" funda in mind then we could see the dollar rally and gold would once again be pulled back from its gains.

Current view: BUY ON DIPS

Trade Range:

METAL	INTERNATIONAL price range	DOMESTIC price range
GOLD	$1207 - $1242 an ounce	Rs.26,500 - Rs.28,000 per 10 gm
SILVER	$16.85 - $17.85 an ounce	Rs.38,000 - Rs.40,000 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 - "Gold's Future at Stake!"

http://riddisiddhibullionsltd.blogspot.in/2014/10/golds-future-at-stake.html

GOLD'S FUTURE AT STAKE!!

by Mr. Prithviraj Kothari, MD, RSBL

As 2014 began, it was all green for gold. Investors thought that gold has once again entered the bull market. But this week gold shunned all its gains in 2014 and fell 0.7 per cent.

On the other hand the dollar reached a four year high this week as there were high expectations in the market that more jobs were added in three months. This further added to the speculation the Fed may raise interest rates next year.

When the dollar gets strong and the U.S. yields are higher than gold is counted as one of the least attractive investments. The feeling that investors had about gold in 2008, they are feeling the same for dollar now as all investors are bullish about the dollars prospects. 

Now gold has been abandoned by many as this metal is not paying interest and  Gold was also depressed by a rebound in European shares, which had slumped on Thursday on disappointment the European Central Bank wasn't more aggressive at its meeting. Dollar has strengthened more than a per cent against a basket of other currencies and is on a straight track of gains for the 12th week. 

The non-farm report. US non-farm payrolls rose by 248,000 jobs, and the jobless rate fell to 5.9 percent last month, the lowest since July 2008,as stated by the Labour Department. The change in total non-farm payroll employment for July was revised from 212,000 to 243,000, and the change for August was revised from 142,000 to 180,000. With these revisions, employment gains in July and August combined were 69,000 more than previously reported.

Post this report spot gold fell as much as 1.4 percent to its lowest since Dec. 31 at $1,195.38 an ounce and was down 1.3 percent at $1,197. It was for the first time in 2014 that gold fell below $1200 on Friday as the dollar strengthen over the positive US non-farm payroll data. Gold fell even further when the markets agreed that the interest rate hike could happen by mid-2015 or even earlier.

Rising interest rates reduce gold’s allure because the metal generally only offers investors returns through price gains, while a stronger dollar typically cuts demand for a store of value.

Moreover, SPDR Gold Trust, the top gold-backed exchange-traded fund and a good proxy for investor sentiment, said its holdings fell 1.19 tonnes to 767.47 tonnes on Thursday - a new low since December 2008. This declined gold prices further. 

Apart from the data reports released during the week, it was weak physical demand that could not provide support to gold prices.

Demand from China was low as the Chinese markets remain closed for a week long holiday. Though gold prices did get some support from the Pro-democracy rallies in Hong Kong but it was not enough to reverse all the losses from a stronger dollar.

Now the markets await for the Chinese and Indian markets come back next week, they may see lower prices as a good buying opportunity, so possibly some support will come from physical demand in Asia and in the U.S. the Fed policymakers will scrutinize the data as they prepare for a policy meeting on Oct. 28-29

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1180- $1207 an ounce	Rs. 26,000- Rs. 27,500 per 10gm
SIILVER	$16.40- $17.50 an ounce	Rs. 37,000- Rs. 40,000 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 -
"Dollar Drawing Directions For Gold" - http://riddisiddhibullionsltd.blogspot.in/2014/09/dollar-drawing-directions-for-gold.html