GOOD NEWS TURNS TO BE BAD FOR GOLD

 - Mr. Prithviraj Kothari (MD, RSBL:RiddiSiddhi Bullions Ltd.)

                  As we said, the "bull" in the Bullion seems to be fading away.

Gold seems to be losing its glitter as it's no longer appealing to the common investor.

Gold has dropped almost $200 an ounce in the past 10 days.

Gold reached $1179- it’s lowest since 2010. In fact gold is headed for a 24 per cent drop for the second quarter. This is considered to be the biggest quarterly drop for gold since 1968.

All this was triggered due to short selling and good economic data coming in from the US. However, Gold has declined sharply since Fed Chairman Ben Bernanke said last week the U.S. central bank plans to start scaling back its $85 billion monthly bond purchases in the next few months if the U.S. economy grows more quickly than anticipated and the jobless rate falls rapidly. That would tend to drive up interest rates, making gold less attractive as a safe haven for funds in a low-rate environment. 

One of the prime reasons suspected was the panic selling, as everyone tried to exit as they were in deep fear as to how low can gold go.

However, Friday was welcomed on a different trading note for gold. Though it dropped during the day, later in the evening it bounced back. The main reason for this was that Friday witnessed a daily close, a weekly close, a monthly close and a quarterly close for gold contracts. This resulted in short covering. Also 1180-1155 was seen as a good bottom for gold to bounce back. It turned back from 1179 and crossed 1200 thus reaching 1228 by 11 pm (IST).

A record breaking event that we saw in the past week was the depreciation of the rupee in the Indian market. Rupee was valued at its life time low of 61.15 against the dollar. If this depreciation would not have occurred then gold would have been somewhere around 22,000 keeping in mind the drop in gold prices in the international markets. But a weak rupee curtailed the prices thus creating a support for gold at 24,800. 

Platinum remained under pressure, although it finds good support around the $1,320. I feel platinum might appear a more promising prospect, given their relatively better looking fundamentals, mostly on the supply-side due to concerns over strike activity in South Africa. However, these fears may have been somewhat reduced by the civil and reasonable wage settlement at Aquarius earlier this week—the first platinum miner to settle in South Africa’s 2013 wage negotiation season. However, whether this negotiation and settlement sets a precedent for the rest of the sector remains to be seen, especially since these negotiations were not marred by NUM-AMCU rivalry, as might be the case at other miners.

Gold support is at $1,205 and $1,170. Resistance is at $1,265 and $1,300. Silver support is at $18.18 and $17.70, resistance is at $19.42 and $20.16.

In the domestic market, gold is expected to move in the range of INR 25,500 on the lower side and 27,500 on the upper side

"The primary purpose of this blog by Prithviraj Kothari - MD, RSBL(RiddiSiddhi Bullions Ltd.) is to educate the masses of the current happenings in the Bullion world."

-Previous Blog: 

"Has The Bull Period For Gold Ended?" : http://riddisiddhibullionsltd.blogspot.in/2013/06/has-bull-period-for-gold-ended.html

HAS THE BULL PERIOD FOR GOLD ENDED?

                      - Mr. Prithviraj Kothari (MD, RSBL:RiddiSiddhi Bullions Ltd.)

This entire week gold was dancing to the tunes of the Fed's stimulus plan.

On Wednesday, June 19, Federal Reserve Chairman Ben S. Bernanke stated that the central bank may start curbing stimulus. He further said that the central bank may start reducing the $85 billion in monthly debt buying in 2013 and end the program in 2014. Only if US economic conditions this step would be taken. Once this statement was out, gold plunged down. The market was taken aback by shock that triggered moves in a number of markets Thursday, including weaker equities, a stronger dollar, higher Treasury yields and gold saw its lowest level since 2011. Silver was the hardest hit, which fell from 21.33 to as low as 19.39. 

However, all this comes on an assumption that the U.S. economy continues to improve.

An improvement in the US economy means that- 

Ø  The Q4 GDP in the US must reach 2.3-2.6 percent

Ø  The unemployment rate must drop below 7.3- 7.2 from the current 7.6 percent

Ø  The inflation rate must be well below 2 per cent.

If this happens then gold will no more enjoy the "safe haven metal" status that it currently has.

Investors have already started losing faith in the metal as gold heads for its first annual drop since 2000. Some even say this statement from the Fed clearly gives a signal that the bull period for gold has ended.

The main reason that gold touched its life time high in 2011 was the launch of QE and if this stimulus plan is curbed then gold will plunge terribly.

The premium at the Shanghai Exchange for physical gained 10 USD to trade as high as 30 USD over the international price. Trading volume at the time of writing was 22.2 tons on the two physical contracts, far away from the 57.6 tons seen on the record day in April of this year. One reason for the lower volume could be that the physical market is still tight as refineries have back logs. Furthermore import quotas might have been reached by some participants and last but not least the tight cash liquidity among Chinese banks these days.  

Apart from the current statement released, traders and investors await the reports that are due this week which will justify the curtailment of the stimulus plans.

The reports to be watched for are -

Ø  Durable goods Report

Ø  Consumer Confidence report

Ø  New Home Sales report

Ø  Gross Domestic Product

Ø  Weekly jobless claims and personal income and spending

Moreover, Treasury yields and the amount of bargain hunting that emerges after this week’s sell-off will also be closely watched by gold traders next week.

While in the currency market, we saw depreciation of the rupee, with rupee touching an all time low of Rs. 60 against the dollar.

Weakness in gold initially persisted into Friday’s overnight session, but Asia-Pacific traders said Chinese buying helped the market steady. By Friday Mid night gold was up around 2 dollars reaching 1292$. 

Though gold has shown nominal signs of recovery, the basket of suspense will open next week for this yellow metal.

Gold support is at is at $1,290 and $1,232. Resistance is at $1,300 and $1,350. Silver support is at $19.26 and $18.53, resistance is at $21.30 and $22.60.

"The primary purpose of this blog by Prithviraj Kothari - MD, RSBL(RiddiSiddhi Bullions Ltd.) is to educate the masses of the current happenings in the Bullion world."

~ Previous Blog:
 "Searching For The Bull In The 'BULL'ION" :
 http://riddisiddhibullionsltd.blogspot.in/2013/06/searching-for-bull-in-bullion.html