DEBT CEILING OR DEATH CEILING FOR GOLD?

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

Gold prices seemed to be in a wavy mood all this week. With prices gaining momentum on Tuesday and Wednesday and then falling back on Thursday and picking up on Friday again.

Let's take a look at the weekly movement of gold prices.

Monday- On Monday, gold and silver slightly declined. Their decline coincided with the downfall of other commodities such as crude oil. In the forex market, leading risk related currencies such as the Euro and Aussie dollar depreciated against the USD. 

Tuesday- Gold went to test the downside and dropped to 1305.50 when aggressive selling hit the market in the afternoon. A lower US September consumer confidence number seemed to provide the needed support, and by the end of the day, Gold shorts got squeezed out when it recovered all the way up to 1328 again.

Wednesday- On Wednesday there was uncertainty in the market on the issue whether the US lawmakers would be able to agree to a spending bill before next Tuesday to avert a government shutdown. Focus again shifted to gold as it witnessed safe haven buying. According to US Treasury Secretary Lew the Government will be out of money on 17th October and won’t be able to meet all of its financial obligations. Gold reacted with a move higher to a high of 1338.20

Thursday- Gold fell on Thursday as a rise in the dollar and mixed US economic indicators prompted investors to take profits after gains in the previous session. In US economic data on Thursday, contracts to buy previously owned home fell for a third straight month in August, while fewer Americans filed new claims for jobless benefits last week. Spot gold was down 0.8 percent at $1322.40 an ounce

Meanwhile, Republicans in the US House of Representatives refused to give in to President Barack Obama's demands for straightforward bills to keep the government running beyond Sept. 30 and to increase the government's borrowing authority to avoid default. 

Friday- Gold prices gained more than one percent on Friday as the trading hours closed. Prices rose over expectations ahead of a weekend that could yield a decision on whether the US government shuts down next week.

Gold jumped more than 1 percent on Friday as wrangling over the U.S. budget and jitters over the outlook for Federal Reserve policy stoked buying interest, with buying accelerating sharply on a break of a key chart level.

New York Fed President William Dudley said on Monday that the U.S. central bank could still reduce its support for the economy later this year, while St. Louis Fed President James Bullard said on Friday that stimulus could be scaled back in October, depending on economic data. Comments from a Federal Reserve official that suggested a bond-buying taper could be pushed out to next year helped spur the precious metal upward.

It was this month of the year, in 2011 that gold reached its life time high of 1920$ when the first US debt ceiling crisis surfaced. The crisis was resolved at the last minute. A similar crisis creates waves (though minute) in the market where investors wait and watch the US economic data reports and key figures that determine whether the US Federal Reserve could begin reducing its bond purchases this year.

The metal also received a boost from the International Monetary Fund, which reported that central banks continued to increase gold reserve. The data showed an increase of 12.7 tons in Russia’s Gold Reserves, Turkey adding 23.3 tons, Kazakhstan 2.5 tons and also Ukraine, as well as Azerbaijan were among two tons of buying. On the sell side stood Canada, Mexico and the Czech Republic with marginal amounts of a few hundred kilos in total.

Still, the price of bullion has fallen about 20 percent this year, after 12 years of gains.

Moves by India to cut gold imports as it wrestles with its ballooning current account deficit have been keeping buyers at bay. 

The US debt ceiling debate is heating up, but while a temporary Government shutdown cannot be ruled out, no one really expects the US to default, but finally increase the limit again.

The primary purpose of this blog (Prithviraj Kothari's view on Bullion Markets- MD,RSBL (Riddisiddhi Bullions Ltd.)) is to educate the masses of the current happenings in the Bullion world.


- Previous blog -
"Final surprise or more to go!!"
http://www.riddisiddhibullionsltd.blogspot.in/2013/09/final-surprise-or-more-to-go.html

FINAL SURPRISE OR MORE TO GO!!

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

So finally.....the much awaited and the most discussed meeting was held this week. The FOMC meet began on 18th September and was over by the 19th. All expectations, rumours, speculations and predictions were finally put to a halt.

Everything was going red for the yellow metal until Wednesday. On Wednesday gold jumped 4.1 per cent (the highest in 15 months) when the Fed made a statement that they would need more evidence and clear signs of US recovery before curbing its $85 billion-a-month of bond buying. No taper! The Fed topped the surprise no-tap vote, by delinking tapering to any “magical number”

Gold hovered near one week highs and was on track for its biggest weekly gain on five weeks after the US Federal Reserve postponed the tapering of its stimulus measures that have long been a supporter for bullion.

Bullion rose 70 percent from December 2008 to June 2011 as the U.S. central bank pumped more than $2 trillion into the financial system by buying debt, increasing concern about currency debasement. Bernanke said there is no fixed schedule for tapering and a statement from the Fed signalled interest rates will stay near zero as long as unemployment remains above 6.5 percent and inflation forecasts don’t exceed 2.5 percent.

Gold slid on Thursday and more so on Friday after positive data release from the US. Spot gold prices were last at $1,352.45/1,353.20 per ounce, down $15.10 or 1.1 percent on the Thursday’s close. Spot Bullion prices for gold fell $25 on Friday morning from Thursday's 7-session high, trading at $1350 per ounce as concerns grew that next month's US "debt limit" deadline could spark panic in financial markets. In the other precious metals, silver prices at $22.53/22.59 per ounce were down sharply on Thursday’s close of $23.12, while platinum prices fell $14 to $1,448/1,453.

Initial jobless claims for the week ending September 14 increased 15,000 to 309,000 but were well below the expected 330,000 and the Philadelphia Fed business outlook index rose to 22.3 in September, much better than the forecast of 10.3 and Augusts' reading of 9.3. Reports released showed sales of previously owned U.S. homes unexpectedly rose in August to the highest in more than six years and manufacturing in the Philadelphia region expanded in September at the fastest pace since March 2011. Apart from the encouraging data, Gold sank more on later part of Friday after Federal Reserve Bank of St. Louis President James Bullard said that the US central bank may move next month to taper its QE and reduce stimulus pending which has acted a booster for precious metals over the years. He simply put it in this way, “Market overeacted with taper expectations”

The next big event is the appointment of a new Fed Chairman. Any tapering that is expected to happen in October will be dependent on data released from the US and speculative interest may remain soft as investors prefer to wait and watch before jumping into the markets.

On the domestic front, the government on Tuesday raised the import duty of Gold Jewellery to 15% from 10% earlier, introducing a 5% tariff differential with raw gold. The move, which underlined the government’s persistent efforts to dampen the demand for Gold imports and stabilize the rupee, will also give some comfort to domestic jewellery industry with a decisive export orientation. The Finance ministry’s decision followed RBI’s tightening norms for Gold Loan non-banking financial companies (NBFCs). 

Usually artisans manufacture gold jewellery factoring in local demand and the process of manufacturing does take time. This move if not had implemented, the absence of duty differential between the imports of plain Gold and jewellery, bulk buyers who didn’t want to wait for purchases started importing. This affected the livelihood of artisans who were dependent on jewellery making.

India's gold shipments came to a virtual halt after the Reserve Bank of India (RBI) told importers on July 22 that a fifth of their purchases would have to be turned around for export and that 80 percent would be available for domestic use. Clearing the air on gold import norms, a government official today said more than 20 per cent of the imported metal can be exported back, a clarification that is likely to help release inbound shipments held up at the customs. 

Domestic jewellers can now breathe a sigh of relief with this clarification, as demand is expected to pick up in the coming months with the arrival of the wedding and festival season, traditional times to give gold. And this year's good monsoon will boost incomes of farmers, who often use gold as an investment.

As far as the trade range for gold is concerned  it is expected to hover between $1270-$1370 and Rs.28,500- Rs.31,000 in the international and domestic markets respectively.

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 -
"Are they really precious?"
http://www.riddisiddhibullionsltd.blogspot.in/2013/09/are-they-really-precious.html