IS IT A DOWNSIDE OR AN UPSIDE POTENTIAL FOR GOLD

 - Mr. Prithviraj Kothari, MD,RSBL

Overall, it was a decent week for gold. It was a swing for gold that swayed between the bullish and bearish trends. Since Nov. 7, the metal has climbed 9 percent from a four-year low.

Gold was up 2.5 percent this week after Tuesday's big rally. Falling stock markets have prompted some investors to buy the metal as an alternative asset, while a drop in the greenback made dollar-priced bullion cheaper for holders of other currencies. The spot gold price was last at $1,224.00/1,224.90 per ounce, down $1.80 on Thursday’s close. But overall it was a positive week for gold.

Some key influential factors for gold this week have been:

SPDR: An improvement in sentiment was seen in the holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund. Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, edged higher to 725.75 tons on Friday, a nearly 5 tonnes rise last week. Since mid November its around 717 to 721 tonne range in terms of holdings.

US DATA: Gold soon touch a low on Friday to print a price of $1214 when the US consumer confidence spiked to a new post-recession high in December. The Thomson-Reuters/University of Michigan preliminary index of consumer sentiment leapt to 93.8 then the expected value of 89.5, the highest level in the past 8 years. This confidence could be attributed to the decline in fuel prices.

CHINA: China's National Bureau of Statistics report showed that industrial production to have advanced 7.2 percent in November from last year. This was the weakest growth in three months and slower than the 7.7 percent increase seen in October and 7.5 percent growth forecast by economists, which will only fuel speculation that further stimulus measures from Beijing might be needed.

EURO ZONE: data from Eurostat showed Eurozone industrial output to have edged up by a less than expected 0.1 percent October, after a revised 0.5 percent increase in the preceding month. Moreover, Fitch ratings cut its ratings on France to AA from AA+ on Friday, saying the country's revised deficit reduction target was not enough to avoid a downgrade.

DOLLAR: Gold extended gains as the dollar headed for the biggest drop in a month against a basket of 10 currencies. The dollar index, which tracks the U.S. unit against six major currencies, traded at 88.32 on Friday, down from its previous close of 88.55 late Thursday in North American trade. 

OIL PRICES: Weakness in energy prices have weighed on gold sentiment lately, dulling the metal's appeal as a hedge against oil-led inflation. 

Overall, Safe-haven demand and short covering have been behind gold's recovery from 4-1/2-year lows hit last month. 

Silver does remain locked in the range of $17.00 - $17.35 with a break either side of this, would give some more idea on which side is the prices headed. Whereas the short term support for Gold is at USD $1215 and the resistance around $1235

With the FOMC meeting next week, and amid increased market concerns over Russia, Greece, global energy prices, Chinese economic growth etc. both gold and silver are likely to remain range bound and dominated by technical trading patterns.

Markets believe that the statement released by the FOMC all this while about “considerable time” shall be removed from their minutes now. Which means that the rate hike will happen soon which will further affect gold prices.

What needs to be watched closely this week?

• 15th - the U.S. November industrial production
• 16th - the December flash manufacturing PMI for China, the Eurozone, and the U.S. November housing starts
• 17th - the Bank of England MPC Minutes, the FOMC rate decision, the Fed’s press   conference and the U.S. November inflation
• 18th - Germany’s December IFO business climate
• 19th - the Chicago Fed’s speech 

As we approach 2015 while bidding farewell to 2014, we see three major events that will be affecting gold prices largely in the coming year:

1. FED's move towards normalizing monetary policy and raising interest rates
2. Problems in the Eurozone and the European Central Bank’s stimulus plans
3. China consumption and growth story

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 - "Appetite for Gold Declined"

http://riddisiddhibullionsltd.blogspot.in/2014/12/appetite-for-gold-declined.html

APPETITE FOR GOLD DECLINED

 -By Mr. Prithviraj Kothari, MD, RSBL

In the past few weeks we have seen volatility in gold but then it has settled back on the lower trading range. With fall in gold holdings in the SDPR gold trust we have seen investors interest weakening in the yellow metal. Apart from the SDPR, the dollar has also played a crucial role in influencing gold prices and it will continue to do so in the coming months.

Although, US economy is on a mend, the actions taken by central banks (Euro-zone and Japan) to prop up its economies will likely result in to weakening of their respective currencies and strength in the dollar in turn prices heading lower.

Moreover, the decision coming in from the Swiss referendum not to boost its gold reserves, at the same time falling oil prices and diminishing investment actions are also signifying that the market has temporarily disowned gold and has been replaced by more interest generating assets in its class.

Earlier in the week economists admitted there was some downside risk to the employment forecast following Wednesday’s private sector payrolls data, compiled by payrolls processor ADP. The report was weaker than expected as corporations and businesses created 208,000 jobs last month. The unemployment rate for November was 5.8%, unchanged from October’s reading of 5.8%; economists were expecting an unchanged reading. The report also said that the labor force participation rate was unchanged at 62.8%. Last month we saw a very strong labor market as the reports released by the US labor department states a significantly higher-than-expected nonfarm payrolls report for November.

On Friday, the Bureau of Labor Statistics said 321,000 jobs were created in November, up from October’s revised level of 243000; October’s initial report said 214,000 jobs were created. September's employment report was also revised higher to 271,000 from the original report of 256,000 jobs. This was the biggest jump in employment since January 2012. The report noted that the 12 month average for employment was 224,000.

There was a huge growth witnessed in the jobs in November which was led by gains in professional and business services, retail trade, health care, and manufacturing.

Even though the jobs report was extremely impressive, gold did not extend sharp losses after its release. The previous two jobs reports saw upward revisions in employment gains, and wages also rose. The job gains in 2014 are the fastest rate since 1999

Gold prices dropped under $1,200 following a blowout November nonfarm payrolls report. It instantly fell by 10$ as there were further expectations that the Fed will start talking about the Fed funds going higher than expected. Such news is not motivating for the commodities markets and it further expected that gold prices will weaken.

Simultaneously we saw the US dollar rising on this news. The dollar index rose above 89 for the first time since March 2009. The dollar advanced to the highest since 2009 against a basket of currencies, cutting the appeal of bullion as an alternative asset. Dollar is trading currently at $ 1.228 against euro. Euro is slacking after the ECB left the interest rates unchanged.

The strong labor report further signifies the fact the Federal Reserve may soon hike rates and this could happen as early as next spring.

The only issue that could be of concern would be the wage growth reports as it was not seen to be that strong and could keep the Federal Reserve apart from pulling the trigger on interest rate hikes.

Before hiking the rates the Fed would want to see some further improvement in the wage growth which could practically happen if the current momentum in hiring is maintained and the underemployment rate continues to fall.

The labor markets have been improving rapidly over the past few months. The issue of concern now is the Fed’s reaction to its mid-December meeting. But if we see the global scenario gold prices in the international markets is expected to trade lower as a hangover of the recent run of losses.

In the near past, we have the dollar being the key influential factor for the weakened in the yellow metal and it is expected to continue to do so in the near future to.

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 - "Too Many Economies Putting Pressure On Gold"
http://riddisiddhibullionsltd.blogspot.in/2014/11/too-many-economies-putting-pressure-on.html