GOLD TO REACT TO FOMC

- By Mr. Prithviraj Kothari, MD, RSBL

 

Gold has been trying to find itself. It was at its peak in 2011-12, touching a lavish bull level of $1900. But in the last one year, gold prices have been falling, hovering around $1000 these days.

The ones who were bullish for gold are now speechless. Some supporters of gold have even lost faith in it. 

Though gold has been just above they key areas of $1150, there more downside risk for the yellow metals as the dollar continues to strengthen ahead of the Fed’s policy-setting committee meeting on March 17-18.

The dollar hit its highest in nearly 12 years on Friday and is widely expected to reach parity with the euro, due to the gap between U.S. and European interest rates.
Ahead of an expectation of an interest rate hike, a stronger dollar has been clouding over the positive outlook for gold.

A stronger than expected U.S Jobs report last week had raised expectations that the Fed would hike interest rates soon. Since then gold has taken a beating.

Gold was consecutively down since 8 days, falling more than 1 per cent on Wednesday. Gold has been strongly influenced by a robust dollar and expectations of higher U.S. interest rates.
The metal was headed for its sixth weekly loss in the past seven, down 1 percent so far and having hit its lowest in more than three months at $1,147.10 on Wednesday.

Following these negative sentiment, holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 0.28 percent on Thursday to 750.95 tonnes, the lowest since January. It had been three weeks since the fund saw any inflows.

Moreover, cutting the appetite for gold was last week's stronger than expected U.S. non-farm payrolls data that renewed expectations the Federal Reserve would begin to increase U.S. interest rates in mid-year.

A strengthening dollar makes dollar denominated assets like gold more expensive for holders of other currencies thus making gold unattractive.

After breaking a nine day lowering streak, gold prices managed to stay positively stable on Friday, Spot gold was up 0.1 percent at $1,154.35 an ounce during the day.

*Source-www.kitco.com

Analysts have noted that gold and silver have struggled all week as investor and traders piled in the U.S. dollar, driving it to a 12-year high. They add that the trend does not look like it will end soon.
The key event for financial markets next week will be the Federal Open Market Committee meeting, which will release its monetary policy statement Wednesday.

In the week, market player will be closely keeping a watch on the Federal Reserve as analysts are expecting gold to suffer on the back of a stronger U.S. dollar as the central bank prepares for an eventual rate hike.

However, the eventual rise in interest rates will cap any rally in gold next week.
Although the FOMC meeting will garner most of the market’s attention, other economic reports that could be market moving include regional manufacturing to be released Monday and Thursday as well as some housing data at the start of the week.

TRADE RANGE 

METAL	INTERNATIONAL	DOMESTIC
GOLD	1130$-1200$ an ounce	Rs.25,500- Rs.26,500 per 10gm
SILVER	15.23$- 17.00 $ an ounce	Rs.34,000- Rs.37,000 per kg

“The primary purpose of this blog by Prithviraj Kothari - MD, RSBL, is to educate the masses of the current happenings in the Bullion world.”

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Topic- " An Upbeat Dollar Beats Up Gold"

http://riddisiddhibullionsltd.blogspot.in/2015/03/an-upbeat-dollar-beats-up-gold.html

AN UPBEAT DOLLAR BEATS UP GOLD

- By Mr. Prithviraj Kothari, MD, RSBL

 

As the outlook for the U.S dollar remained upbeat, we saw a bearish sentiment in the market for gold. Many investors expect that an interest rate hike by the U.S Federal Reserve will come sometime in 2015 was responsible for this sentiment. 

The Fed had stated that before it would tighten its policy, after it sees acceleration in wage growth. But at the same time the Fed had also made it clear in the January minutes in recent weeks that rate hikes could occur even if inflation is floundering. For now, as the Fed doesn’t consider the drop in inflation anything more than transitory, it’s unlikely that the wage figures ruffle too many feathers, at least for the U.S. Dollar.

Apart from the interest rate hike, there is also a great deal of uncertainty about the geopolitical and macroeconomic situation and gold continues to react to development in this regards.
The strong greenback has pushed gold prices below the key psychological level of $1,200 an ounce and has pushed the euro to a 12-year low

Both the euro and gold prices remain under significant pressure from the U.S. dollar.
The U.S. dollar has strengthened, particularly against the euro and that is negative for gold.

Though gold ended down for the week, it did show modest gains on Thursday afternoon although in euro terms it struck a near-one-month high following a speech from ECB president Mario Draghi on the bank’s QE programme.

An optimistic Draghi today outlined the ECB’s bond-purchasing plan that will begin on March 9. But he set a floor for bond purchases at the ECB’s deposit rate of -0.2 percent, following questions regarding to the extent to which the central bank will dabble with negative-yielding bonds.

As the week ended, gold prices fell to a two month low on Friday following a strong U.S non-farm payrolls report. Details are as following-

• US total non-farm payroll employment increased by 295,000 in February and the unemployment rate edged down to 5.5 percent from 5.7 percent, which was significantly better than the forecast for the addition of 240,000 jobs and a 5.6-percent unemployment rate.
• Labor reports over the next several months will take on added significance because the Federal Reserve is on the verge of raising interest rates.

This reading put added pressure on the Federal Reserve to raise interest rates in the near term.


By Friday afternoon prices had hit a session low of $1,162.90 an ounce and settled only marginally higher at $1,164.30, down 2.6% for the day. The gold ended the week at its lowest point since Dec. 1, shedding 4% since Monday.
Many cautious investors displayed a large scale pullout, looking for refuge in investment opportunities like stock, assuming bullish prospects for equity markets would continue in emerging markets like India.

Currently investment in equities looks more fruitful. Many investors are seeking shelter under this avenue as it is expected to give better returns than bullion; hence many investors sold their holding in gold to divert funds into equities in markets like India.
The jobs report definitely added fuel to fire for those who are expecting higher interest rates. Gold’s fall today shows that there is faith in the interest rate underpinning the dollar right now.

Strengthening dollar which is trading at its 11 year peak because of optimism in the US economy will be a strong factor for gold prices to come down in this month.

Although most of the market focus will revolve around the U.S. dollar and interest expectations, the two economic reports that will garner investors’ attention are-

•  February retail sales
•  Producer inflation data

The question now on everyone’s mind is just how low gold prices will go next week, in what is a quiet week for U.S. economic data. Most analysts expect that markets will spend most of next week preparing for the Federal Reserve monetary policy meeting on March 18.
Any hike by the Fed, which has kept rates near zero since 2008 to stimulate the U.S. economy, could hurt demand for bullion, a non-interest-bearing asset. If there is no physical demand then the market could be vulnerable.

The current strategy that market players should follow is “BUY ON DIPS”. 

Following trade range could possibly give an idea for the same.

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1130-$1200 an ounce	Rs.25,700- Rs.27,000 per 10gm
SILVER	$15.40-$ 17.00 an ounce	Rs.35,000- Rs.38,000 per kg

“The primary purpose of this blog by Prithviraj Kothari - MD, RSBL, is to educate the masses of the current happenings in the Bullion world.”
- Previous blog -
"Overall A Decent Budget For Gems & Jewellery Industry"

http://riddisiddhibullionsltd.blogspot.in/2015/02/overall-decent-budget-for-gems.html