GOLD DIRECTIONLESS: RSBL

 By Mr. Prithviraj Kothari, MD, RSBL

Most of the global asset markets were quite unpredictable this week. Be it equities, precious metals, bond yields or oil- they moved up and down following last week’s FOMC meet.

Coming to gold, it neared its second weekly gain on Friday afternoon, touching $1145 per ounce but plunged back following new comments on US interest rates from Fed chair Janet Yellen.

Increased risk sentiment helped gold prices to end Friday’s session modestly lower with prices settling at $1,145.60 an ounce; however, the yellow metal has managed to end the week in positive territory, up 0.6% - its second consecutive weekly gain.

Spot gold was last at a high of $1,144.80/1,145 per ounce. Prior to a speech from Federal Reserve chair Janet Yellen in which she said the Fed has not ruled out the start of policy normalization before 2016, gold had been trading at two-month highs.

The gold price surged to its highest since August 25 during Thursday afternoon sessions as the yellow metal took advantage of a slump in the US dollar.

On Friday afternoon, gold moved back from Thursday’s gains, after the release of positive US data and talk that the country’s central bank will increase interest rates by the end of the year.

The US data released were as follows-

• Final GDP was better than expected at 3.9 percent
• Services PMI at 55.6.
• Revised UoM consumer sentiment and inflation expectation at 87.2 and 2.8 percent were little changed

A slowing global economic activity and excessively low inflation had delayed the Fed’s decision to hike interest rates. Its decision had raised concerns about the economic stability of the US, China and rest of the world and resulted in lifting of the dollar.

Aggressive comments from Yellen have provided the dollar with renewed upside momentum, depressing bullion prices through reduced safe-haven demand. 

There are expectations in the market that the FOMC is likely to raise the federal fund rates in December as they witnessed a likely upwards revision to US-second quarter GDP growth

Gold declined on Friday morning after Federal Reserve chairwoman Janet Yellen expressed optimism that the US economy would warrant an increase in interest rates before the end of this year.

She stated that it will be appropriate to raise rates in 2015. Now there are around 13 weeks let in 2015 and two more FOMC meetings are lime up in October and December each, which means there are just two opportunities left to raise interest rates.

Federal Reserve Chair Janet Yellen has spoken, and an interest rate hike remains on the table for 2015, but one trend watcher says the central bank is just talking ‘really tough.’

Moreover, Yellen noted that ‘idiosyncrasies’ like lower oil prices and weaker overseas economies have delayed the Fed from pulling the trigger. 

Yellen said FOMC officials “expect that the various headwinds to economic growth will continue to fade, thereby boosting the economy's underlying strength.”

Yellen’s bullish sentiment was buoyed through the third revision to second-quarter US GDP growth to 3.9 percent from 3.7 percent. The final GDP price index quarter-over-quarter was in line with forecasts at 2.1 percent.

Yellen and her colleagues at the Federal Open Market Committee (FOMC) have maintained interest rate at near-zero levels since December 2008.

Persistently low inflation, emerging global slowdown and an uneven recovery remain obstacles for the FOMC members to normalizing monetary policy.

Though the yellow metal is still showing encouraging signs, but in event of a rate hike, the impact on gold would be bad.

Currently old is searching for a direction as the FOMC has left the market wandering. The picture will get clearer by the end of the year or maybe early 2016.

Currently one need to follow the FOMC religiously as gold’s whereabouts depends on the Fed’s directions.

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 -

"Rate Hike Hangover Continues on Gold: RSBL"

http://riddisiddhibullionsltd.blogspot.in/2015/09/rate-hike-hangover-continues-on-gold.html

RATE HIKE HANGOVER CONTINUES ON GOLD: RSBL

 By Mr. Prithviraj Kothari, MD, RSBL

The much awaited suspense over the Fed’s September interest rate hike was finally put to an end. It did create much volatility in the market and bought in some good news for gold.

Gold prices finished the week on a three day rally as the Federal Reserve’s sudden concern over emerging market growth boosted safe-haven demand.

The volatility was like a storm for gold and it tried to be holding on to the gains.

Thursday was a crucial day for gold as all eyes were focused on the FOMC meet that was due to release its monetary policy. 

Fed Chairwoman, Yellen, added that there was an argument to be made for raising rates in September; however, because of the global weakness and fragile financial market, the committee decided to err on the side of caution and leave rates unchanged.

We saw the global economic growth led to volatility shocks in the global equities market. This once again raised concerns over the world economic development. Hence the FOMC dropped to normalize US monetary policy after announcing concerns on overseas growth.

The Fed decided to maintain near-zero interest rate levels, citing recent equity volatility exacerbated by a global growth slowdown.

The central bank’s ultra-loose monetary policy, coupled with dovish comments from Fed Chair Janet Yellen on Thursday, helped gold end a three day losing streak as it finished Friday in positive territory. 

The spot gold price was last at $1,136/1,136.40 per ounce, its highest in around two weeks and up $3.80 on Thursday’s close.

Though in her proceedings press conference, Fed chairwoman did not rule out an October hike but the market is keener about a hike in December. This would force the FOMC to raise rates sharply to combat said inflation and prevent the organization from increasing the federal funds rate at a gradual pace.

Since the Fed removed all calendar references in its forward guidance in April, the bank is now entirely data-dependent.

Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.

Inflation remains a persistent issue – the FOMC said that declines in energy prices and non-energy imports are the underlying causes preventing inflation from hitting the Fed’s target of two percent.

As of now a weak US dollar would prove to be positive for gold in the near future and if the equities markets lower then gold could rally further.

But the current statement released by the Fed that it intends to raise rates by year-end has made the market players believe that this price rise on gold will be short lived as they expected the dollar to strengthen as early as October.

The Fed’s next opportunity to raise rates will fall in October or December.

Looking ahead, the Fed’s stance on interest rates and heightened concerns of the global economy hurting the U.S. economic recovery has created some strong positive sentiment in the gold market, at least in the short term. 

As we continue to see the after effects of the FOMC meet on gold, prices of the yellow metal are expected to rise in the short term.

As there is not much important data slated to release next week, gold prices are expected to range around 1150$ an ounce but will continue to struggle as soon the rate hike news creeps into the market.

Most analysts are centering on the global market for gold to rally. The fact that the central bank is concerned about the impact the global economy is having on equity markets, some analyst note that further weakness in U.S. stock markets could benefit gold. 

 

Some even expect the U.S. dollar to remain at elevated levels as markets continue to price in a rate hike later this year, which will limit gold’s potential. 

Although U.S. economic data will be limited next week some of reports that could create some volatility in the marketplace include manufacturing data, including durable goods numbers for August, home sales data for August and the final second-quarter U.S. gross domestic product report. 

A relatively light economic calendar next week means the gold market will continue to digest the Federal Reserve’s decision to leave rates unchanged. 

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 -

"Uncertainties For Gold:RSBL"

http://riddisiddhibullionsltd.blogspot.in/2015/09/uncertainties-for-gold-rsbl.html