BULLION MARKET HIGHLIGHTS- DECEMBER 2015- AUGUST 2016: RSBL

 By Mr. Prithviraj Kothari, MD, RSBL

AS 2015 came to a close, most traders expected that 2016 would be a year subjugated by a series of Fed rate hikes.

 

That belief strengthened in late-December 2015 after the Fed delivered on its promise – and raised interest rates for the first time in almost a decade.

 

In a widely telegraphed publication called the "Dots Plot", the Fed signalled that it would continue to normalize its monetary policy, and raise interest rates by a total of +1% through 2016 to a target of 1.375%, a "gradual" pace and in line with earlier forecasts.

Though gold was expected to be bearish on 2016, it showed upward prices movements and The World Gold Council attributed this rally to three principal factors:

• the widening landscape of negative interest rates in Japan and Europe;
• the devaluation of China's Yuan; and
• The realization that the Fed was bluffing on hiking the Fed funds rate, and wouldn't dare take any action that could knock the stock market lower ahead of the upcoming November elections in the US for Congress and the Presidency. 

While we are a few months away from the year end I would like to throw light on a few key highlights that influenced the bullion markets worldwide.

Fed Hike- on 4 January 2016, San Francisco Fed chief John Williams said he saw a steady campaign of interest rate rises. "There are still pretty significant headwinds" facing the US economy from weak overseas economies, the strong Dollar and housing related issues, Mr.Williams told reporters.

 

 

On 6 January, Fed deputy Stanley Fischer warned the markets could expect three to four increases in the Fed funds rate this year. Speaking on CNBC television Fischer warned:

"If asset prices across the economy – that is, taking all financial markets into account – are thought to be extremely high, raising the interest rate may be the suitable step."

Based on expectations of 4-Fed rate hikes to 1.375% by year's end, gold initially declined in the month of December to a six year low at $1054 per ounce. Most analysts expected the downfall to continue through 2016, but they were proved wrong.

 The price of gold suddenly surged 16% higher in the first quarter alone. Giving gold one of its strongest quarterly performance in nearly three decades.

SPDR- The world's largest gold-backed exchange-traded fund, SPDR Gold Shares (NYSEArca:GLD), surged in its holdings to the most in six years, jumping to 983 tonnes, and global gold holdings in ETFs topped 2,000 metric tonnes for the first time since June 2013 following the Brexit fallout, when gold buying sparked even more gold buying.

 

BOE-  On June 30th, Bank of England chief Mark Carney said the economic risks from Brexit had started to crystallize, and he hinted at a resumption of QE, lifting gold to its biggest one-day surge in years after Britons shocked markets by voting to leave the European Union, driving investors toward safe-haven assets such as bullion.  Gold soared as much as 8 percent to its highest in more than two years in the week ending 28^th June, 2016 after the UK referendum results, sending investors rushing for protection. Gold prices surged to its highest level in more than two years, at $1,359 since March 17, 2014, sending shock waves across markets.

BOS- by June 2016, all of Switzerland's government debt, including its 30-year bonds, started trading at negative yields.

 

In all, a record US$11.7 trillion of global sovereign debt has dipped to sub-zero yield territory. This has only strengthened the rally in gold, and about $13-14 billion of money has made its way into gold exchange-traded funds (ETFs) as asset managers moved from fixed income into gold earlier this year.

 

Gold climbed to a two-year high at $1371 per ounce in July, convincing UBS Group to predict that gold is probably at the beginning of its next bull run

BOJ- gold's spectacular rally found a stiff roadblock at the $1370 per ounce area when Japanese government bonds suddenly began to fall sharply into their worst sell-off in 13 years. On August 2nd the Bank of Japan shocked the markets and rattled gold traders by keeping its bond purchases steady, defying expectations it would buy even more.

 

 

Gold traders became even more nervous after the BoJ said it would re-evaluate its Negative Interest Rate and QQE policies in September. Some investors see the policy review as a tacit admission by the central bank that after more than three years of massive money printing, the BoJ could be ready to start tapering the pace of the QQE liquidity injections.

 

   

Since the $10.4 trillion bond market in Tokyo is at the core of the negative interest rate world, if the BoJ begins to allow Japanese bond yields to climb by tapering its QE scheme, it could continue to rattle the price of gold – at least on a short-term basis.

BoJ policy makers ordered staff to make a "comprehensive assessment" on the impact of its easing program and negative interest-rate policy ahead of the next policy-setting meeting on 20-21 September. Some traders suspect the review is aimed specifically at assessing the effectiveness of negative rates, potentially giving policy makers scope to declare the exercise unsuccessful.

So for the month to come, BoJ will surely have something crucial for gold in store.

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:

"Higher Gold Prices For The Domestic Market: RSBL"

http://riddisiddhibullionsltd.blogspot.in/2016/08/higher-gold-prices-for-domestic-market.html

HIGHER GOLD PRICES FOR THE DOMESTIC MARKET: RSBL

  By Mr. Prithviraj Kothari, MD, RSBL

Firstly I would like to congratulate all the Rio Olympic representatives of India who worked so hard and attained commendable feats for our country. While we saw Indian achieving remarkable feats, at the same time gold prices in the domestic market were shining in spite of a global downtrend.

Where on one hand gold in the global markets was down 0.34 percent at $1,347 per ounce, on the other hand the yellow metal in the national capital, gold of 99.9 and 99.5 per cent purity commenced the week higher at Rs. 31,130 and Rs. 30,980 and advanced to closed at Rs. 31,250 and Rs. 31,100 per 10 gram respectively, showing a rise of Rs. 175 each.

Markets remained closed on Monday for 'Independence Day' and Thursday for 'Raksha Bandhan'. Bullion traders said increased buying by jewellers to meet festive season demand from retailers amid a firm global trend mainly kept precious metal prices higher.
While Makar Sankrant marks a pause to festive celebrations, on the other hand Raksha Bandhan marks the onset of the festive season in India. 

Gold has seen a sharp upsurge in demand on a sudden jump in Japanese yen against the dollar. Crude oil prices have also increased over the last few months. With the investment buying continues, gold is seen touching $1400 an oz in global markets translating thereby setting a new record in near future.

Coming to international markets, analysts hold the dovish July policy meeting minutes issued this week responsible for the decline in prices.

Interest rate expectations are the driving force behind the recent moves in both the dollar and gold. Expectations of higher interest rates here in the U.S. support a stronger dollar while they weigh on the price of precious metals.

Interest Rate Hike- Gold prices slipped on Friday, weighed down by a strengthening dollar after two Federal Reserve officials' comments that increased expectations for an interest-rate increase this year.


Gold is sensitive to higher rates which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar in which it is priced. The week has seen a run of mixed signals from Federal Reserve policymakers.


San Francisco Fed President John Williams on Thursday joined a growing chorus of his colleagues signalling support for a U.S. interest rate hike in coming months. New York Fed President William Dudley reinforced his confidence in a possible rate hike for a second time in the week.  Dallas Fed President Robert Kaplan, however, saw limited room to manoeuvre on rates.

US Dollar- The dollar against a basket of six major currencies was up about 0.27 percent at 94.414. The current ‘ultra low’ interest rate environment has sent global investors on a search for yield.  Hence any prospect of an interest-rate increase in the U.S. makes U.S. dollar investments more attractive to international investors, leading to an increase in the value of the U.S. dollar vs. other currencies across the globe.
The U.S. dollar, after tapping a seven-week low this week, strengthened Friday, cutting demand for precious metals, which are priced in the currency.

SDPR- Among exchange-traded funds, the SPDR Gold Trust GLD, -0.88% was 0.7% lower. Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell 0.2% to 955.99 metric tons in the week through Thursday, according to Bloomberg data.
ECB- Meanwhile, European Central Bank rate setters agreed not to discuss any policy change at their July meeting and to keep market hopes for more stimuli in check, minutes showed on Thursday.

U.S. Jobs report- Reports showed the number of Americans filing for unemployment benefits fell more than expected last week, while manufacturing activity in the U.S. Mid-Atlantic region saw a mild improvement this month. Members of the Fed's rate-setting Federal Open Market Committee were generally upbeat about the U.S. economy and labour market, but several said any slowdown in future hiring would augur against a near-term rate hike. U.S. economic data will continue to offer clues on the Fed’s next move. Fed Chairwoman Janet Yellen will also speak at a conference in Jackson Hole, Wyo. next Friday. Admittedly, a very strong U.S. labour market report in early September could already be enough to prompt the Fed to hike interest rates next month.

Still range bound, gold looks to break through USD $1,360 as the possibility of a September rate rise tempers.

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:

"Indian Gold Bullion Market- Issues, Challenges, Opportunities and the way forward: RSBL"
http://riddisiddhibullionsltd.blogspot.in/2016/08/indian-gold-bullion-market-issues_13.html