GOLD DIRECTIONLESS: RSBL

By Mr. Prithviraj Kothari, MD, RSBL

 

The world economies are tumbling. Greece is trying to get more days…Chinese economy is foundering and there us downside pressure on the US markets too. A collapsing economy directly means that the money flocks to gold. But the markets have something else to say.

The precious-metals sector is enduring losses for the third straight week. Gold has also rallied yet remains dangerously close to making a new weekly low for the bear market.
The metals opened lower on Monday in the shadow of the Greek ‘no’ vote but ended the day mixed with average losses of one percent.

Precious metals closed down 0.7 percent on Monday, with gold holding value at $1,169.20 while on Wednesday, gold was last up $4.60 closed at $1162/ 1162.80 an ounce.
Precious metals prices moved away from recent lows in trading on Thursday morning after Fed minutes failed to provide a clearer picture on when the normalization of US monetary policy might begin.

There is more than one factor that is collectively responsible for the movement in gold prices. Let’s take a detailed look at them.

Greece- In Greece, negotiations will continue over the weekend after Prime Minister Alexis Tsipras presented a proposal that accepts many of initial cuts introduced at a June 26 meeting.
Investors seem to believe this latest chapter in the multi-year negotiations process will end in Greece remaining in the Eurozone – the euro was last up 0.8 percent to 1.1130 against the dollar.

The uncertainty over Greek debt crisis boosted the dollar, dampening demand for the precious metal as an alternative investment.
A $60 billion bailout plan is headed to the Greek parliament. It includes most of the austerity measures Europe has insisted upon and the gross dollar amount of the bailout is slightly higher. We shall see next week what happens and how it affects markets.


FOMC and Interest Rate Hike- “Based on my outlook, I expect that it will be appropriate at some point later this year to take the first step to raise the federal funds rate and thus begin normalizing monetary policy,” Yellen said in her speech in Cleveland.

“But I want to emphasize that the course of the economy and inflation remains highly uncertain, and unanticipated developments could delay or accelerate this first step,” she added.

US, Federal Reserve Chairwoman Janet Yellen predicted the timeframe for the initial interest rate hike, but also provided a hedge regarding the importance on inflation.
Friday, Yellen said, in a speech at an event in Cleveland, that she still expects interest rates to rise later this year but also acknowledged factors that continue to hold back the U.S. economy, including potential foreign threats.

China- GOLD BULLION prices rose Thursday against all major currencies, recovering all but $1 of the week's earlier $20 drop per ounce against the US Dollar as world stock markets gained following a hard bounce in China's main equity indices.

With trading still halted in around half the shares listed on the Shanghai and Shenzhen stock markets, the CSI300 index of the biggest companies closed 6.7% higher after the last 3 week's near one-third collapse.

No one knows where is gold is heading. Presently there is no call for safe haven investments beyond the solid currencies, namely the dollar, yen and Swiss franc.
Global market tensions may ease out next week with Greece expected to find some resolution to its ongoing credit crisis and Chinese leaders expected to keep a tight grip on equity markets to prevent another major market selloff.

Despite the negative weekly close, optimism is creeping back into the gold market. After five consecutive weekly bearish outlooks, retail investors have finally turned bullish, while market professionals remain mixed.

Nobody would want to buy in an extremely uncertain market. Investors would buy or sell gold once they get a clear signal and know what is happening with the Federal Reserve. The uncertainty in Greece and China is creating a lot of uncertainty and fear because nobody knows what the Fed is going to do.

Apart from the Global markets, there are others things that need to be watched by the investors next week. It’s a big week for US markets economic data.
 

• Markets will receive retail sales data for June
• Regional manufacturing data for July
• Consumer inflation data at the end of the week

However, the highlight will be Fed Chair Janet Yellen’s semi-annual testimony before Congress. She will testify before the house Financial Services Committee Wednesday and the Senate Banking Committee on Thursday.
Market participants are expected to go through her indication extremely careful to find any hints on when the central bank will pull the trigger on an interest rate hike.


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 -"Will Gold Create The Safe Haven Magic"

http://riddisiddhibullionsltd.blogspot.in/2015/07/will-gold-create-safe-haven-magic.html

WILL GOLD CREATE THE SAFE HAVEN MAGIC?

                                                  

                                                                                  By Mr. Prithviraj Kothari, MD, RSBL

 

Considering the ongoing Greece crisis, there was a global assumption that gold would rise in a flight to safety- in fact it happened the other way round- it has fallen around two percent this week, around 1.5 percent in June and more than six percent from its May peak of $1,232.50 per ounce.

Gold prices slumped to their lowest since March as back-and-forth developments over Greece’s debt talks are providing an incentive for investors to disassociate with the Eurozone and its currency.
The gold price tested three-and-a-half-month lows on Thursday morning ahead of the release of the monthly US jobs report.

Spot gold was last at $1,165.20/1,166.00 per ounce, down $2.70 on the previous session’s close – earlier it came within 20 cents of matching it’s lowest since March 19 and is heading for its fourth consecutive lower session.


Thursday’s non-farm payrolls report showed that the US created 223,000 new jobs in June against consensus of 231,000, which has lent some support to precious metals towards the back end of the week.

The gold price made modest gains on Friday after US labor market data came in slightly weaker than expected in the previous session, lending support to precious metals.

In the US jobs report on Thursday, released a day early due to Independence Day celebrations the unemployment rate dropped to its lowest since April 2008 at 5.3 percent, a level the US government considers to be ‘full employment’, average hourly earnings were stagnant, missing predicted growth of 0.2 percent.
A negative jobs reports means and slowly progressing economy which in turn no make majority of the market participant believe that interest rate hike by the US Federal Reserve won’t come in soon. 

Apart from the interest rate hike the market is also closely watching al movements regarding the Greek Debt crisis.
Greek Prime Minister Alexis Tsipras’ aggressive decision to exit negotiations and announce a referendum for Sunday seems to be backfiring. German Chancellor Angela Merkel has reportedly put off a decision until the referendum is voted on by the Greek citizens.

A yes vote would display a total lack of confidence in Tsipras and his left wing-coalition party, Syriza, likely resulting in a reelection. A rejection of the creditor’s proposal would continue the months-long impasse and could signal the end for Greece in the bloc.

The tit-for-tat fails to answer why gold remains in a suppressed state, as the yellow metal is historically viewed as a safe haven for investors during periods of uncertainty.

Gold is failing to make anything of its supposed safe-haven qualities this week despite Greece’s grip on Eurozone membership now at its weakest.   Despite the uncertainty and heavy pressure on global equity markets as a result of the situation in Greece, gold is confounding the widely held assumption that it would rise in a flight to safety.  

What this suggests is that investors either do not value gold’s credentials as a safe haven or do not yet regard this situation as a crisis yet – even though the country is going to the polls on Sunday.

The market is focused on Sunday’s referendum on its creditors’ proposed cash-for-reforms deal. Greece requires additional bailout funds of around 50 billion euros until 2018 under the existing bailout conditions, the IMF claimed, cutting its Greek growth prospects for 2015 to zero from 2.5 percent previously.

Opinion polls released as voting ended suggested a slight lead for the "No" vote.
No exit polls were published. The first official results are expected in the coming hours.
The government had urged people to vote "No", while the "Yes" campaign warned that this could see Greece ejected from the eurozone

Usually such crisis renders support to precious metals. But in this case precious metals haven’t received much lift in spite of the ongoing uncertainties. But markets still remain very much focused on the Greek Debt crisis. 

The Greek people will go to the polls on Sunday to decide whether or not to accept its creditors’ apparently final proposals. No talks on debt relief are likely until after the referendum takes place.

Without additional lending, Greece will default on its July 20 repayment to the European Central Bank (ECB) after missing a payment to the International Monetary Fund (IMF) on Tuesday.

This story may help gold on two grounds- a default on its payments in Tuesday and the risk it will exit the Eurozone. Both these results are strengthening safe-haven demand for gold. Moreover, there is a mounting risk that this will start to struggle on the currency bloc and then the global economy, providing another reason for the FOMC to stay its hand over rate rises.




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 -
"It's A Greece Game For Gold"
http://riddisiddhibullionsltd.blogspot.in/2015/06/its-greece-game-for-goldrsbl.html