RSBL: A GOOD OPPORTUNITY TO BUY GOLD!!!

By Mr. Prithviraj Kothari, MD,RSBL

 

The last couple of years have been anything but normal for gold.  Back in early 2013, the Fed started augmenting its young QE3 debt-monetization campaign with aggressive jawboning.  It kept implying to stock traders that it was ready to quickly ramp up money printing if the stock markets sold off materially.  This short-circuited normal healthy sentiment re balancing sell offs, as traders feared nothing.

Thus the stock markets levitated, powered higher without normal material sell offs.  Since gold is an alternative investment that moves contrary to stock markets, this slowly strangled gold investment demand.  Investors gradually abandoned it, leaving this metal for dead.

FED's exiting the zero interest rates is a big point of debate for US economy. But frankly I do not think this is the only challenge we are talking about. To me, the unwinding of trillions of dollars used to purchase Bonds by the FED is more of a concern. Less than a year from now, FED will have take one of its biggest decisions of reinvesting $200 billion (approx) which are the proceeds from Treasury debt that is supposed to get matured in 2016. 

I did get some more idea by going through some news on the same:
 
1. If FED does not invest, it could lead to an increase in supply of security products available to the investors and put an upward pressure on yields.

2. If they plan to let it expire, it will shrink FED's balance sheet drastically leading to monetary tightening from increases in the benchmark interest rate officials envision for this year. That could mark a reversal of easing that FED achieved when it started its bond purchases programme after the recession.

For this week, Gold advanced for the first time in four days after holdings in exchange-traded products backed by bullion posted the largest increase in more than six weeks. On Thursday, gold-backed ETP holdings rose by 3.9 metric tons, the most since Feb. 23, to 1,620.1 tons, according to data compiled by Bloomberg. Holdings in the SPDR Gold Trust, the top bullion ETP, had the biggest jump in two months. This jump in holdings shows that there is some movement out of the conventional assets into gold.

CFTC data released on Friday showed that speculators sharply increased their bullish bets last week. The net weekly gain of 20,738 contracts was quite balanced from 10,312 of new longs and a 10,426 reduction of shorts. This increase brings the net position to +100,000 for the first time since March 3rd. This was also the third straight week of gains there.

But a good sign from Eurozone did come on Tuesday, where its private sector continued to improve in March with Markit's final composite PMI rising to 54.0 in March from 53.3 in February, an 11 month high.

Following suit, gold prices stabilized above $1200 on Friday although the markets watched the surging dollar. The dollar index remains strong at around its highest in three weeks – it was last at around 99.30, having earlier touched 99.69. The US currency has gained ground following the release of the mildly hawkish minutes from the March meeting of the US Federal Open Market Committee (FOMC) earlier this week.

The spot gold price was last at $1,207/1,208 per ounce, up $12.80 on Thursday’s close. Trade has ranged from $1,193 to $1,210.8. This does seem to be a pyschological boost for the boost.

To bottom it up, we saw gold getting support on Monday; post the weak jobs report that were released last Friday. Moreover, the dovish comment from New York Fed President William Dudley, gave gold the further push in prices. Furthermore, a weaker U.S. dollar provided underlying support for bullion. There may be more scope for bullion to rally.

Precious metals are highly sensitive and react instantly to the following

• Changes in monetary policy expectations,
• Fed's decisions
• Dollar prices
• Geo political crisis.

But currently what matter the most for the market watcher is - when the Federal Reserve will make its first move on rate and potential political fallout of Greece leaving the Eurozone.

Investment Tip: 
If gold breaks $1225 an ounce then it can be considered a good opportunity to buy in the market.

TRADE RANGE:

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1188- $1224 an ounce	Rs.26,500 - Rs.28,000 per 10 gm
SILVER	$16.15- $17.30 an ounce	Rs.36,000 - 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 -
"Playing Games With Gold"

http://riddisiddhibullionsltd.blogspot.in/2015/04/playing-games-with-gold.html

PLAYING GAMES WITH GOLD?

                                                          By Mr. Prithviraj Kothari, MD, RSBL

A truncated week due to Good Friday was not so good for US with significantly weaker Non Farm payrolls report. Moreover many trading centers remain closed for Easter Monday. Anyways, let’s hit back to the Gold price rise over the week and some more understanding on US economic indicators that hit the market.

The first weak data coming from US on Tuesday was the contraction in Chicago PMI for second month in succession. Following February's five year low of 45.8, analysts were again disappointed as March's print came in well below expectations at 46.3 (exp: 51.7). The March figures takes the quarterly average to 50.5 over Q1 2015, the lowest quarterly result since Q3 2009 and markedly down on the 61.3 we saw in Q4 2014

On Wednesday, Gold prices were again tested at US$1180 – 81 support. For the third time this support has withstood the selling. But the ADP data from US that came in early took the precious metals complex to nearly day’s high in no time. Gold had a super boost of US$9 to US$1194 in no time and the way was just up after that by reaching an intra-day peak of US$1208. According to the ADP, U.S. private employers added the smallest number of workers in more than a year during March. Private payrolls rose +189k (+225k expected) according to their employment report.

U.S. national factory activity hit a near 2 year low in March according to the Institute for Supply Management (ISM). The ISM's manufacturing PMI index fell for a fifth consecutive month to 51.5 in March (52.5 expected) from 52.9 in February and declining each month since hitting 57.9 in October. The ISM pointed to various factors including the weather, higher health-care costs and the stronger dollar as reasons for the slowdown. 

Then came in the 2 conflicting reports:

On Thursday, US unemployment claims dropped 20,000 to 268,000 in the week ended March 28, the lowest reading since January 24 and much better than the 286,000 forecast.

On Friday, United States employers added the fewest number of jobs in more than a year during March with non-farm payrolls increasing a mere +126k (+245k expected), less than half February's pace and the smallest increase since the polar vortex of December 2013. While the unemployment rate was unchanged at 5.5 percent, the U.S. Bureau of Labor Statistics reported today that ended 12 straight months of job gains above 200,000, the longest streak since 1994.

The main reasons for the negative labor report were:

1.    Poor Weather- Poor weather conditions during the winters created a sort of slag in the labor market

2.    Stronger Dollar- strong dollar created a great impact on the employment numbers

3.    Energy sector- This sector has been having a considerable impact on the employment numbers, this sector witnessed a decline of 11000 employment numbers in March. The industry has lost 30,000 jobs thus far in 2015, after adding 41,000 jobs in 2014. The employment declines in the first quarter of 2015, as well as the gains in 2014, were concentrated in support activities for mining, which includes support for oil and gas extraction.

The dollar tumbled as much as 1 percent against the euro after the significantly weaker-than-expected report, while U.S. Treasuries rose, with benchmark 10-year yields hitting nearly two-month lows.

Undoubtedly, this does act as a super boost for Gold and other precious metals as the negative data does have a chance to delay the Fed’s decision to opt for the first increase in U.S. interest rates in nearly a decade, which is expected later this year. Gold tends to suffer when rates rise, as that increases the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which the metal is priced.

On the domestic front, gold has also found support from strong physical demand from India, currently the world’s biggest gold consuming country with gold imports touching to 70 tonnes in the month of March, putting total imports in the fiscal year that has just ended at 638 tonnes.

Platinum has been a real lager in the whole precious metals group by being down just over 5%. Silver too had been heavily sold in 2014 but having a good push up by nearly 3%.

The reports that were released on Friday will show its effects and reflections on Monday as international open for trade. I am sure that there would be a price push to US$ 1220 (Approximately) testing its key resistance.

Note: A break above US$1238 would surely give a fresh bullish interest. Until then, traders would wait for FED’s decision on FED rate hike barring the price moves depending on the economic indicators.

TRADE RANGE:

METAL	INTERNATIONAL price	DOMESTIC price
GOLD	1184$- 1223$ an ounce	Rs.26,500- Rs.28,000 per 10gm
SILVER	16.50$- 18.00$ an ounce	Rs.37,000- Rs.40,000 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 -

"RSBL: Yemen's Push While Fed's Caution"

http://riddisiddhibullionsltd.blogspot.in/2015/03/fed-takes-gradual-and-cautious-route.html