AWAITING A GOLDEN YEAR:RSBL

By Mr. Prithviraj Kothari, MD, RSBL

Holiday fever, kept the markets calm with very little volatility in gold prices.

After the Federal Reserve’s interest-rate rise last week, trading remains cautious while investors assess conditions in a non-zero bound environment for the first time in seven years.

Gold prices ended the U.S. day session and a holiday-shortened trading week modestly higher Thursday. Some short covering in the futures market and perceived bargain-basement buying in the cash market heading into a long weekend gave gold its lift.

There were no major international news developments Thursday and the marketplace worldwide was very subdued ahead of the Christmas holiday on Friday.

Spot gold was last at $1,073.60/1,073.90 per ounce, a $2 increase on Wednesday’s close. The yellow metal has climbed away from five-year lows from the start of the month of just $1,046.40.

The gold price was higher on Thursday morning, tracking the recovery in the oil price and a slight decline in the dollar, in thin pre-Christmas trading conditions.

Now that we have rounded up for the week, I would also like to share my view on gold outlook for 2016.

As we all have seen that after increasing consecutively for 11 years, gold started giving negative returns since 2013.  Formerly gold was seen as the highest return generating asset in its class. But now economies have changed and people have shifted to other modes of investment like equities and hence gold has lost its appeal as a safe haven asset.

Will gold bottom further? Has it reached its support level? What’s in store for gold in 2016? 

 Well these questions have been constantly rotating the market since the past fortnight, especially after the fed rate hike.

Everyone in the markets had hopes that the Fed will raise interest rates for the first time in a decade. The day the Fed increased its rates we saw ETF gain 18.6 tonnes for the first time in the past three years. Everyone thought that a rate hike would slosh gold prices but gold managed to stabilize at 1075$ and did not decline as expected.

Moreover, if we see from the mining aspect, the mining cost of gold is around 1000 $- 1050 $ and I don’t see gold going below that level. Now that gold has already witnessed this bottom. I think this year gold might appreciate around 7-8 per cent compared to last year.

Moving on to the Indian markets. As far as the Indian markets are concerned, the INR is gradually appreciating which is in turn affecting gold prices. If you see the international market. Gold may bottom at 1000/1050 dollar and may witness an upswing towards 1200-1300 dollars. But at the same time the rupee appreciating will bring gold in the range of Rs. 24,000- Rs.30, 000 in 2016.

The population of India is 125 crore. Every year 800-900 tonnes gold is imported whether the price is $1900 or $700. A matter of concern is the custom duty that is currently 10 percent. Due to this, there is a huge difference between off shore and domestic markets. This duty increases gold prices by Rs.2, 50,000 per kilo. 

Due to high duty the quantity of gold smuggled into the country is also rising.  Last year around 200 tonnes of gold was smuggled. And this year the figure might touch and 300 tonnes thus bringing the official import figures down to 500-600 tonnes. 

The government has been trying its best to get some viable and profitable schemes into the market like the gold monetization scheme and gold sovereign bonds. Gold sovereign bonds are not a viable option as prices are fixed at Rs.26840 and currently the prices are almost 5per cent down.

Gold monetization is a scheme where the temples are more willing to deposit gold in banks. This scheme may take time for proper implementation but once it pick up we are really positive that the idle gold lying in the temples and Indian household) almost 500-1000 tonnes) will be flushed into the market and this would really help the economy.

  

To conclude I would say that 2015 was a year with nervous sentiments. But 2016 could be the golden year literally especially the jewelers and the investors.

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 -
"Markets Remain Calm For Gold: RSBL"
http://riddisiddhibullionsltd.blogspot.in/2015/12/markets-remain-calm-for-gold-rsbl.html 

MARKETS REMAIN CALM FOR GOLD: RSBL

 By Mr. Prithviraj Kothari, MD, RSBL

Gold showed wave like movements this week. Beginning with a positive tick on Monday, then lowering by the middle of the week and again picking up pace on Friday, it seemed like a see saw trend for gold.

Though gold was up on Monday, it continued to remain under pressure from a Federal Reserve policy meeting that was due on 15-16 December weeks, when the US central bank was expected to raise interest rates for the first time in nearly a decade. In its last policy meeting of the year on December 15-16, the Fed was seen raising rates by a quarter of a percentage point. 

Gold has already slid 9 percent for the year, its third straight annual decline, in anticipation of a rate hike.

Gold dipped on Thursday morning in the US, with the start of US monetary policy normalization spurring the dollar.

The Federal Open Market Committee (FOMC) decided to start to normalize US monetary policy after seven years of near-zero interest rates, lifting the federal funds rate to 0.5 percent from 0.25 percent. The policy board still sees the long-run rate at 3.5 percent and finishing next year around 1.375 percent.

After markets halted to examine the impact of the rise, the dollar gained against other major currencies and pressured the precious metals lower – the greenback was last 0.7 percent stronger at 1.0844 against the euro.

Post the FOMC meet, gold was expected to come under increased downside pressure from a stronger dollar.

Investors will now focus on the pace of future rate rises, which will be affected by the general strength of the economy and underlying inflation data.

In US data, weekly unemployment claims for were in line with forecasts at 271,000 and were below the psychologically important 300,000 mark.

The Philly Fed manufacturing index for December at -5.9 missed the predicted 2.1 while the current account for September at -$124 billion was largely as expected.

While the Fed does not expect to reach its inflation target of two percent until 2018, Chairwoman Janet Yellen said in the following press conference that current transitory factors stem from low oil prices.

After Thursdays decline, the markers expected gold to drop further. But Gold prices jumped in morning trades Friday after the dollar weakened against other currencies and as investors bought back oversold position after prices slumped to over four-month low on Thursday.

Gold prices finally found some support in the weakening dollar index following profit booking and buying at lower level. Prices of the bullion were down as dollar index weakened against other currencies, boosting investors' appetite for dollar-denominated commodities.

Gold was in positive territory on Friday morning in London after the dollar eased slightly amid growing expectations that the path to higher interest rates in the US will be a slow one.

The spot gold price was last at $1,054.9/1,055.2 per ounce, up $2.20 on Thursday’s close. Trade has ranged from $1,051.2 to $1,058.1 so far. In the previous session, the yellow metal dipped below $1,050.

Gold (and silver) rose on Friday, taking back about half of Thursday’s loss of approximately 2.00%.

Reasons behind the price rise were-

• The anxiety in equities restricting from the despair in crude prices
• A changed deliberation of a longer-term view that gold is “due” to rise because of weakening dollar strength
• Hurry to grasp snips.

In the coming days and weeks, the downside in precious metal prices may be limited due to low activity as a result of Christmas and New Year, volatility is expected to remain calm. But the year could start on a negative note for gold. Chairwoman Janet Yellen said future rate increases will be gradual and the policy could be reversed if the US economy begins to slow

In the interim, volumes are expected to shrink while market participants head to the sidelines during the holiday period, possibly resulting in choppy conditions.

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 -
"Tricky Week For Gold : RSBL"
http://riddisiddhibullionsltd.blogspot.in/2015/12/tricky-week-for-gold-rsbl.html