FINANCIAL CALAMITY AVOIDED OR THE WORSE IS YET TO COME??

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

Gold was going gaga over the week. Usually, we don't see much trading, just a few hundred lots of gold futures, on an early Thursday morning in New York. But what we saw this Thursday came as a shock. A wave of buy orders worth over $2.3 billion gushed into the market.

While other commodities declined, gold prices rose on Thursday despite dollars drop.

In just 10 minutes gold prices rose 3 per cent. It created a rhythm for the next 12 hours of trade. In fact many traders and investors were baffled and bewildered as they have seen such inexplicable soaring prices and trade surges over the past two weeks and this time too there were no explanations.

Spot gold rallied to a session high of $1,324.06 per ounce , up more than 3 percent on the day.

Late on Wednesday, the U.S. Congress approved an 11th-hour deal to end a partial government shutdown and pull the world's biggest economy back from the brink of a debt default that could have threatened financial calamity.

The US government shutdown ended and the nations borrowing authority was extended as US President Barack Obama signed in to the deal.

It funds the government until January 15 and raises the debt limit until February 7 so there is the possibility of another manufactured crisis in Washington early next year.

The resolution reached in Congress avoiding US government default left investors sufficiently uncertain that US dollar fell, bond yields eased and gold and other precious metals jumped

Despite the US signing a deal for the debt ceiling and putting a halt to the shutdown, we saw an opposite reaction in the market. 

Gold held onto 3 percent gains throughout the session as the dollar tumbled on Thursday following the U.S. congressional deal to restart the government and avoid a federal debt default.

Now what compelled this behavior????

Investors and traders are concerned that this extension of the debt ceiling had only delayed another shutdown by a few months. In fact, in February, once again they predict another shutdown in Congress between republicans and Democrats. if this happens then we should await a worsened economic scenario and even higher gold prices. 

Moreover, gold once again caught the investors attention as the dollar slumped on ideas that the extension of the debt ceiling and economic damage done to economy as a result of the government shutdown may delay the Fed from tapering in December

The US debt deal is being taken as a positive factor for gold as it will last just a few months. Investors say that it's just a temporary solution which has raised uncertainty once again over the Fed's decision to taper its bond buying.

The two-week shutdown and acrimonious debate over raising the U.S. debt ceiling have knocked investor and business confidence, denting growth prospects for the world's largest economy.

Markets will now refocus on economic news and the timeline for the US Federal Reserve's tapering of its monetary stimulus bond-buying programme. The Fed surprised financial markets in September by opting to delay the start of stimulus reduction.

The Fed is committed to purchasing $85 billion in new debt per month in an open-ended programme (QE). Accommodative measures from the US central bank are supportive of gold because extra liquidity tends to debase the dollar and create future inflationary risks.

Meanwhile in the Asian markets too there were a few factors that soared gold prices.

China's Dagong ratings agency downgraded America to an ‘A -' rating from ‘A’ after the US Congress only avoided defaulting on its debt by a couple short hours.

The decision taken by Dagong has caused precious metal prices to soar, all gaining by around 2-3 percent and breaking away from the remaining commodities sector,

In India, gold was being sold at a hit record premium of $100 an ounce.  A shortage f supplies to me the festive demand has resulted in this high premium.  Due to the additional premiums, quoted gold prices in India are 8 percent higher than the current spot price of $1,261 an ounce Banks, the primary dealers of bullion, are currently importing the yellow metal chiefly for exporters, as under the so-called 80/20 principle, jewellery exporters get priority for supplies over domestic manufacturers. The principle, part of a package of measures announced in July aimed at cutting India’s current account deficit by reducing gold imports, states that 20 percent of all gold imported into India must be re-exported.

Following government clarifications, banks have begun to process fresh orders, but the rule will still inhibit imports.

But nonetheless, the demand supply gap is widening and affecting gold prices.

The trade range for gold this week is expected to be $1290-$1350 (an ounce) in the international markets and Rs.29000- Rs.32000 (per 10gm) in the domestic markets.

The primary purpose of this blog (Prithviraj Kothari - MD, RSBL |  Bullion market blog) is to educate the masses of the current happenings in the Bullion world.
- Previous blog -
"US Deal or No Deal"
http://riddisiddhibullionsltd.blogspot.in/2013/10/us-deal-or-no-deal.html

U.S. DEAL OR NO DEAL?

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

Firstly, I apologize to my readers for not posting the Blog on Saturdays, that I usually do. We were busy with the SPARSH – Touch of Elegance store launch in Borivali, Mumbai. Secondly, what just happened to Gold on the day of my store launch? Gold sent the entire market into shockwaves.

It lost $30 in just two minutes. There was huge sell order that triggered the plunge. This single order was said to be the culprit as it took gold down to a three month low. Friday extended bullion's drop to a fourth consecutive day, its longest losing streak since late June. For the week, the metal was down 3.4 percent, its sixth weekly decline in seven weeks. 

Gold's sudden price tumble was a result of hedge funds and institutional investors flooding the gold futures market with sell orders. Spot gold was down 1.5 percent at $1,266.80, having earlier fallen as much as 1.8 percent to its lowest since July 10 at $1,262.14 an ounce.  An unusual large sale order in New York Futures and signs that a deal strike to avert potential US debt default prompted investors to sell and flee the market.

Gold is generally viewed as a safe haven asset in turmoil. But some confusion prevails in the market that has set gold moving on the other side.

However, later in the day markets attention was again moved towards the data that was out for release. Though gold was under selling pressures, the losses were almost halted by data that showed US weekly jobless claims touched a six month high in the previous week. Gold was quickly sold below 1300 again, but had to rally when US jobless claims came out with a 374’000 number and headline traders let it jump to the day’s high of 1312. The U.S. Bureau of Labor Statistics however said the number was wrong, due to a new computer system in California, as well as the government shutdown, so that gains were immediately given back.

Trading volume, which has been light this week, heated up briefly for about 10 minutes in U.S. morning trade. Prices remained range bound, with buyers on the sidelines due to a lack of U.S. data and anxiety over how the stand-off in Washington will play out, as a U.S. government shutdown continues. 

Gold remains vulnerable and possibly quite volatile in the short term but it is becoming increasingly attractive to long-term buyers with a significant rise in the price all the more likely over the next three-to-five years.

The uncertainty over the US government shut down is expected to create a negative impact on consumer spending, unemployment and economic activity. And if the impact will last longer then it's is less likely that the Federal Reserve would make any pending change in the US monetary policy. The Federal Reserve will not risk adoption of policies that might trigger a full-blown recession.

The current situation of the market place is that the US government will come to a budget agreement and raise the debt ceiling. But, in case that does not happen, the market has to be prepared for soaring gold prices as the yellow metals will once again dress up as a safe haven asset.

In the domestic markets, it's the demand numbers that's playing games. Despite seasonal demand, there is a weak trend in the domestic market. However, the demand is expected to pick up as rural income is expected to boost.

India gold purchases may go up this year on likely firm rural demand boosted by higher than expected monsoon showers, weak yellow metal prices. A report by the WGC expected demand to high in gold this quarter. Crashing international prices are also prompting buyers to enter the market at dips.

First thing that Indians stock is food and then Gold,. Gold, in India, is always considered above all other asset classes. Be it equities, real estate, funds etc. Demand for gold is expected to increase in the days to come.

Looking ahead, Indian festival and wedding-related demand, restocking by jewellery manufacturers worldwide in anticipation of Christmas and New Year retail buying, continuing strong demand from China, and a pick-up in central-bank acquisitions, should underpin the gold price and could contribute to a resumption of the long-term uptrend in the metal’s price.

Gold in the international and domestic markets is expected to trade in the range of $1230- $1320 an ounce and Rs.27,000- Rs. 31,000 per 10 gram respectively.

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 -

"Only one thing is certain for gold.....uncertainty"

http://www.riddisiddhibullionsltd.blogspot.in/2013/10/only-one-thing-is-certain-for-gold.html