GOLD REGAINING ITS SAFE HAVEN APPEAL: RSBL

By Prithviraj Kothari, MD, RSBL

Recently investors have begun flocking to traditional safe-haven assets like gold and eschewing more risky stores of wealth as 2016 has been characterized by frazzled markets and mounting tensions stemming from the global equities rout. 

In recent days, the rally has been driven by erosion in the dollar, which is down to October lows and was last trading 1.2 percent softer at $1.1220 against the euro.

Gold is once again gaining its safe haven appeal as it gets influenced by depressed oil prices and low inflation. These factors are raising concerns over Fed policy expectations and global economic development.

A potential slowdown in the American manufacturing and services industry has created questions over the timing of the Federal Reserve rate hike and target of roughly a two percent fed funds rate by year end.

A majority of market participants do not see a rate hike happening this year, compared to a week ago when consensus was for an increase in July.

Earlier this week, Federal Reserve Bank of New York president William Dudley said that tighter financial conditions would be taken into account at the next Fed policy meeting in March – investors interpreted this as a further delay in a US interest rate hike.

As markets await further news from the Fed, they were also awaiting the US jobs reports to see whether it created a negative or positive impact in the economy.

Trade was volatile following a mixed US employment report, which showed that 151,000 jobs were added in January, missing the 189,000 forecast. However, the unemployment rate did tick down to 4.9 percent and wage growth was strong. December meanwhile was revised down to 262,000 from 292,000.

However, after years of low wages and non-existent inflation, wage growth increased the most in a year at a 0.5 percent gain, besting the estimate of 0.3 percent.

A substantial wage boost shows the labor market is beginning to tighten and it is becoming more difficult for employers to find available workers.

That news along with the reduction to 4.9 percent in the headline employment figure was enough to spur the dollar after it had sunk to the lowest point since October. The greenback last traded 0.8 percent stronger at $1.1127 against the euro.

Gold futures edged higher after trading in negative territory throughout most of the day as a downturn in US equities offset a stronger dollar.

Now it’s becoming clearer that the lows for dollar denominated gold have been seen after an extended, weakening four year bear market. 

The deterioration in the American currency begins as a global equities rout hit all three major economic regions led by fears of a possible US recession and hard-landing in China.

Investors have questioned the timing of the Federal Reserve’s first rate hike and now don’t expect another increase until the second half of 2017, according to the CME Group Fed Watch.

The global macro environment has so far been positive for the precious metals market.

The poor start to the year has investors questioning the timing of the Federal Reserve’s first rate hike, with various Fed members stating the Fed’s policy would monitor and assess financial conditions.

Before the global uncertainty, March was estimated to be the next date for another rate increase as the Fed needed a gradual schedule to reach the target of two percent by year-end.

After weeks of global instability and central banks favoring looser monetary policy, investors have increased their gold ETF holdings, which stood at 1,573 tonnes as of February 2 – a gain of 22 tonnes week-on-week and 92 tonnes month-on-month.

Keeping in mind the global economies, gold prices are expected to strengthen in the near-term, driven by improved spec and investor sentiment, but we do not expect prices to break above the $1,200 psychological level.

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 -
'Best Performing Month for Gold since Jan 2015: RSBL"
http://riddisiddhibullionsltd.blogspot.in/2016/01/best-perofrming-month-for-gold-since.html 

BEST PERFORMING MONTH FOR GOLD SINCE JAN 2015: RSBL

By Mr. Prithviraj Kothari, MD, RSBL

Recent years have seen countless claims that gold and silver prices have to head far lower, implying demand is low or supply is high.  But the actual data continues to prove this false, showing precious-metals bearishness is rooted in sentiment and not fundamentals.

Currently market sentiments for the yellow metal are bullions over the month for January as the global equities routs and a growth discomfort spurred gold prices nearly five percent – the biggest monthly gain in a year.

Gold prices headed for their best monthly rise in a year on Friday, slipping back to $1110 per ounce as world stock markets gained, but trading 4.6% higher from the start of 2016. This was gold's best monthly gain in Dollar terms since January 2015.

This year where on one side we saw the global equity markets began with a major sell off the yellow metal has given its best signal months performance since January 2015- as it rose 4.9per cent this month. Gold had hit a 12-week high of $1,128.20 during US trading on Wednesday and has since eased on profit-taking.

The gold price inched higher during Asian trading hours on Thursday supported by market uncertainties, as well as expectations of slower future Fed rate hikes.

Gold edged higher on Friday after U.S. data showed economic growth decelerated sharply in the fourth quarter and the price of the precious metal was on track for its biggest monthly rise in a year after global economic headwinds hit riskier assets.


Data released was as follows:

• Fourth quarter advance GDP came in at 0.7 percent, missing the forecast of 0.8 percent. GDP Price Index stood at 0.8 percent versus the estimate of 1.2 percent.
• Revised University of Michigan Consumer Sentiment was at 92.0, below the projection of 93.1, while inflation expectations rose 2.5 percent.
• Employment Cost Index was in-line with projections at a 0.6 percent gain, while the Goods Trade Balance was at -61.5 billion, in range of the economic consensus of -60.0 billion.
• Core durable goods in December at -1.2 percent missed the estimate of -0.1 percent durable goods orders at -5.1 percent was sharply below the forecast -0.6 percent.
• US weekly unemployment claims at 278,000 were better than the forecast 281,000 and below the psychological 300,000 mark.

The gold rally is now battling a physical demand concern as Indian trade has lost pace and Chinese investors prepare for the aforementioned Chinese Lunar celebration.

This will further constrain the gains for gold as physical demand is likely to weaken.

While sentiment is improving across commodities the major concern now is where golf will re-bound of it will be carried along if long-term investors get favorable towards commodities.

Gold reached a 12-week high of $1,127.80 on Wednesday, after the Federal Reserve said it was closely watching the global economy and financial markets. This supported the view that U.S. policymakers may not be able to raise interest rates again as soon as March.

Currently the major deciding factor is the US tightening policy. Market players believe that even one further lifting of the fed funds target this year will come with great difficulty, and that the Fed’s own projected pace of four hikes this year is a near impossibility.

Maybe things won't be this bad next month in the wider markets, so it is possible that if ETF flows are subsiding, prices will be lower too.

But one positive lesson we can learn from this month is that gold does still have a safe-haven role and that could stand it in good stead through a testing year to come.


- Previous blog - "Markets remain calm as we enter 2016:RSBL"
http://riddisiddhibullionsltd.blogspot.in/2016/01/markets-remain-calm-as-we-enter-2016.html