Will Gold Make Higher Lows Or Higher Highs

The month of volatility is about to end making bullion dealers in India content. March witnessed a lot of ups and downs per se gold and equities. Gold price remains in the red so far this week, much to the chagrin of the gold dealers in Mumbai, as the US Treasury bonds see no reprieve, leading to the relentless surge in the yields. The US dollar is tracking the rates higher, weighing heavily on the gold price. Hopes for progress on the Russia-Ukraine peace talks are boosting the overall market mood, adding to gold’s plight. The incoming updates from the negotiations and sentiment around the US yields will remain the main market drivers ahead of Friday’s critical Nonfarm Payrolls release.

Let us have a detailed look at these key influencers -

• Russian Ruble - Amid all the chaos, the Ruble appreciated from the worst levels of 140 to now 89 against the US dollar in the past 3-4 weeks. Russia reiterated that gas and crude oil selling will be done only in Ruble in the coming times to the West. Though earlier Germany, and now even the G7, rejected the Russian demand to pay in Ruble, amidst brutal war realities. The second round of talks looks inconclusive.
• US Treasury Yields - Gold continues its attempts to settle below the support level at $1915 as rising treasury yields put pressure on precious metals. While the 10-year treasury yields are testing the 2.5% level, short-term yields are rising fast, which is bearish for precious metals like gold and silver. The rise in yields and thus, the increase in real interest rates is due to the higher interest rate expectations of market participants. The Fed Fund Futures are meanwhile pricing in rate hikes of 90 basis points at the next two meetings of the US Federal Reserve. In our view, the gold price is holding its own impressively well against this backdrop.
• Ukraine-Russia talks - The gold price has dropped below $1,920 as Russia and Ukraine negotiators are set to meet in Turkey for a one-on-one meeting. In the absence of any progress, the yellow metal could regain some traction, giving the gold dealers in Mumbai a sign of relief.
• Dollar - The gauge of the dollar climbed to the highest in more than a week, while yields on two-year treasuries surged as much as 14 basis points earlier to lead increases across the curve. Higher rates reduce the appeal of non-interest-bearing gold.
• Speculation - The gold ETFs tracked by Bloomberg registered inflows of 43 tons last week, already their tenth weekly inflow in succession. By contrast, speculative financial investors have withdrawn further from gold, according to the CFTC’s statistics: they slashed their net long positions by 9% to a six-week low in the week to 22 March.
• Shanghai lockdown - The oil prices were knocked back from their latest surge, and many companies were affected as authorities in China put the mega-city of Shanghai into a two-stage coronavirus lockdown after a local tide in cases. On Sunday, the Shanghai officials said they would lock down the city in two stages to carry out widespread Covid testing of the financial and manufacturing hub.

To sum it up, we can say that Gold is an inflation barometer, and Russian sanctions and retaliatory response are bullish for many commodity prices, fuelling the economic condition. Moreover, removing Russian gold production and holdings from the global financial system via the G7’s latest sanctions limits supplies.

Russia can still use its domestic gold reserves and production for transactions with China and other countries that have not sanctioned Russia. However, the increased sanctions will limit Russia’s liquidity options for its over $130 billion in gold holdings. Gold looks set to continue its path of higher lows and higher highs.

Pool Of Factors Pushing Gold High

Continued high inflation along with an increase in geopolitical tensions set the stage for gold's climb this year. Gold prices are set to spiral to a new high this year as investors seek haven during an uncertain time worsened by Russia's invasion of Ukraine. Gold is often used by investors and bullion dealers in India as a hedge against inflation.

Safe-haven flows were witnessed to be built up for gold because Ukraine officially rejected the deadline from Russia. Ukraine on Monday rejected Russian calls to surrender the port city of Mariupol, where residents are besieged with little food, water and power and fierce fighting showed little sign of easing. Ukraine's crisis didn’t show any signs of abetment, which resulted in an upwards movement in gold prices.

The war in Ukraine has already caused a terrible human toll. We see it extracting a heavy economic price as well, mostly via higher energy costs. This is a major supply shock layered onto an existing one, and we see it resulting in higher inflation and lower growth, especially in the euro area. This puts central banks in a bind: Trying to contain inflation will be more costly, and they can’t cushion the growth shock.

Investors and bullion dealers in India have also been closely watching the U.S. Federal Reserve, which on Wednesday raised interest rates for the first time since 2018 by 25 basis points. The Fed Chairman Jerome Powell has made it clear that the Fed will cautiously raise rates to avoid triggering a U.S. recession. This cautious stance has only increased in the wake of the Ukraine invasion.

Time and again, we have seen that the prices of gold and gold coins in Mumbai frequently go up simultaneously with interest rate increases. And the same behaviour was witnessed when the Fed raised rates nine times between December 2015 and December 2018, with gold rising 17%, and when the Fed raised rates 17 times between June 2004 and June 2006, with gold going up 57%.

The current inflation figures coupled with geopolitical tensions have resulted in the hoarding of gold. The demand for gold bars and gold coins in Mumbai have risen tremendously from the entire investor community and other financial institutions. The current environment is so uncertain, given the ongoing COVID-19 pandemic, that investors have continued to hoard gold.

Inflows into gold-backed exchange-traded funds (ETFs) are rising globally. According to the World Gold Council, global gold ETFs drew net inflows of 35.3 tons in February. Inflation and interest rates remained critical drivers for gold; hot CPI prints in the U.S. and Europe earlier in the month confirmed that inflation shows little sign of abating. But amidst the rising volatility coupled with geopolitical tensions in Ukraine dominating headlines, the demand for gold outweighed the impact of higher nominal yields and a marginally higher US dollar.

We expect the gains to continue until we reach a settlement regarding the Ukraine issue, which right now seems a long way distant. So, it would not be wrong to say that there is a pool of factors that are collectively pushing gold high - Inflation, pandemic, geopolitical tensions, Inflows into ETF and global demand.

Gold As An Insurance

 While the energy complex has managed to throw off a long list of bearish developments over the past year, markets appear vulnerable to more corrective action, especially oil production from the United Arab Emirates, Iraq, Venezuela, Iran and Saudi Arabia.

Talking about growth, selling in markets for bullion dealers in India such as Gold, Silver, Palladium, and Platinum could lead to turnover spill over the spill. While the dollar is likely to remain weak, the action of the U.S., suspect that the currency will be managed to support straight-forward gold and silver prices. Especially, if oil prices resume the recent decline in action.

Retrospectively, precious metals markets have begun to show sensitivity to classic inflation signals, and therefore, the U.S. CPI release could present a major junction for gold and silver. In other words, a warm US CPI report could result in fears of a rate hike and a resurgence of a stronger dollar and could push prices below $1,950 in April gold and below $25.00 in silver in May, much to the chagrin of the bullion dealers in India. It is a strange prediction that historically warm CPI reading could result in lower precious metal prices!

Let us move on to geopolitical tensions. The war might be coming to an end (keeping a larger hope) as Ukraine surrenders, and now, the aftermath would be soon resurfacing. The financial markets including equities, currencies and commodities made so many rejoicing rallies to catastrophic falls at places.

Other metals have seen their prices surge, with fears of a shortage of physical metals adding to the price hike. The London Metal Exchange saw "unprecedented movements”, and was forced to suspend trading in nickel on Tuesday after prices more than doubled to $100,000 a tonne. But gold stole the limelight, appeasing the gold dealers in India. We all know that gold acts as insurance in times of uncertainty. Thus, it did not only prove its worth as a haven asset, but it also proved to be an instrument to protect one’s wealth during this crisis.

The gradually unfolding events between Russia and Ukraine have compelled markets to sell gold in cash. But we all know that diversification is the key. Even though one is tempted to sell off their positions, they should not, and rather, they should hold on to our best possible. And let us not forget, we are also dealing with a potentially very high inflation rate.

Furthermore, gold had observed a bearish open drive on Thursday, which signalled a carry-forward selling after the risk-on impulse bolstered in the market for the gold dealers in India. The encouraging undertone is a result of a likely ceasefire between Russia and Ukraine. Post the agreement of Ukrainian President Volodymyr Zelenskyy on a diplomatic solution to halt the battering of Ukraine's economy, equities, and risk-sensitive currencies took a sigh of relief.

Gold prices fell sharply from a high near $2,070 on Tuesday. The precious metal has eased almost 6.5% in the last two trading sessions. But we should not forget that the US CPI, which is due next week, holds significant importance as it will dictate the probable monetary policy action from the Federal Reserve (Fed). It will also play a critical role in influencing gold prices along with the consequences of the ongoing war.

It Is A Win-Win For Gold

 US Fed’s Powell was relatively calm and said that he is not very sure how badly this war is going to hurt the US economy, but there is a surety of one thing - rising commodity prices. Hence, he said March 0.25% hike should be appropriate. Now, the Fed’s May and June policy could also see a similar 0.25% rate hike, according to Fed-Fund-Meter.

We all know any rate hike usually weighs down on gold. But strangely, gold has been resilient in January and early February. The reason behind this robustness was the geopolitical stress of the Russia/Ukraine situation, and this may continue to underpin moves higher if the conflict worsens or sanctions don’t have the desired effect, according to the largest bullion dealers in India.

Gold price extended its range play around the $1,930 level for the third consecutive day, reversing a part of Wednesday’s sell-off. Russian bond and currency are getting into junk and become worthless very fast, yesterday late night came with some best stance from Russian Admin, and they are seemingly calm and readying even for a ceasefire. It is quite possible that sooner or later, a puppet president will be appointed in Ukraine. On the other hand, crude is playing havoc as it reached nearly $115. Other oil-importing countries like India and China will be severely affected if crude sustains these high bands, leading the gold and silver will see a good ripple.

Soaring oil prices, a fallout of the Russia-Ukraine crisis, have refuelled stagflation concerns worldwide, reviving gold’s demand as a haven. Meanwhile, the US dollar continues to hold fort amid ongoing strength in the Treasury yields due to the hawkish Fed Chair Jerome Powell’s testimony. Besides looking for a store of value in times of heightened market stress, we believe many investors see the coming rate hiking cycle as extremely risky given the abnormal macroeconomic backdrop.

The next direction in gold price hinges on the outcome of round two of the Russia-Ukraine ‘peace talks’ while the US economic data will continue to play second fiddle. Ring times of market turmoil, investors turn to gold given its perceived haven status, much to the happiness of the largest bullion dealers in India. As Russian troops invaded Ukraine on 24 February, the yellow metal reached $1,974/oz, the highest it has been since September 2020, taking the gold dealers in India by a surprise. However, even before the situation escalated, we were already seeing signs that institutional demand for gold as a portfolio hedging instrument was turning positive.

Demand for gold as a store of value is climbing, as investors confront soaring inflation and the economic uncertainties caused by Russia’s invasion of Ukraine. Gold spot prices have rallied 6.3% year to date to $1,945.30 per ounce on Wednesday. The current uncertainties suggest that institutions are likely to continue to give more consideration to portfolio diversifiers such as gold, as other choices look less appealing, bringing lots of wealth for the gold dealers in India. So, one potential scenario is a spurt towards those all-time highs over the next two weeks before the gravity effect of higher interest rates starts to pull gold prices down again. We think this will continue through 2022 regardless of how the geopolitical situation evolves.

Geographical Tensions Influence Gold

 A great trick to investing in RSBL gold and silver has become apparent of late. Having or expressing views that are not entirely consistent with the policies and agenda of the Government, the realization that this is bound to happen is already turning into sharp gains in the precious metals sector, which is set to continue and accelerate.

Of course, at the moment the safest form of investment is investing in physical gold and silver, but if they go up then gold and silver stocks will also rise, and we are looking at large gold stocks and bullion dealers in India that pay good dividends like Barrick Gold and Newmont Corp. Close higher on Strong Volume in such a way that they will not give back their profit.

On the latest 4-year chart of the yellow metal, we can see that it is already starting to exit the large triangular consolidation pattern it formed after its strong uptrend from mid-2018 to mid-2020. This correction was normal, and it has put RSBL gold in a very good position to begin its next major uptrend, which will be driven by a combination of rising inflation. As noted above, declining confidence in other forms of investment. At the top of this chart, we see a continued strong uptrend in the accumulation line, which is already making new highs, which certainly bodes well for gold strengthening in the coming months.

Over the last three weeks, gold has made consistent gains with minor corrections for the period the Federal Reserve is planning to hike interest rates as tapering continues. Even though gold is almost on the verge of moving towards the 2020 high of above $2000, the precious metals' upward trend has been dampened by the most influential factors - inflation and expected Federal reserve tightening. As per the bullion dealers in India, Gold prices edged lower in volatile trade on Monday as a possible summit between the U.S. and Russian presidents to discuss Ukraine encouraged risk sentiment and nudged investors away from safe-haven assets.

U.S. President Joe Biden and Russian President Vladimir Putin have agreed in principle to a summit over Ukraine. The French leader Macron said on Monday, offering a possible way out of one of the most dangerous European crises in decades, lifting risk sentiment across the major markets.

The geographical border tensions will be the key in determining whether fears over Ukraine can outweigh the encouraging data on the economic front as well as the likelihood of a series of interest rate hikes this year by central banks.

This possible invasion of Ukraine by Russia has highly impacted most assets across all classes. However, RSBL gold’s gains come ahead of the expected summit between the U.S. and Russian presidents aiming to discuss and find a solution to the Ukraine issue. If the summit finds a solution, it might dampen the appeal of gold.

Pre budget Views 2022

 Lately we have seen that gold has been performing well in the international market. However o the contrary, gold prices have been trading at a discount in the domestic market. The reason being- strengthening rupee. Hence prices in the domestic markets gave not risen Vis a VI the international markets.

Bullion Market expectations regarding Budget 2022 are similar to the previous ones. Let’s take a look

Removal of restrictions on import and exports of gold- In the previous Budget 2021, the Finance Ministry had cut down the import duty to 7.5 per cent from 12.5 per cent. This was done to bring some boost to the gold industry.

This year too, the bullion industry wants further cut in the import duty in order to strengthen the market. Several distortions have been witnessed between the domestic and international markets and this reduction in duty will help to balance it out.

The market expectation is that the duty should be reduced from the current rate of 7.5 per cent to 4 per cent. However, if the government decides to impose GST (goods and services tax), such a rate cut would be nullified.

However, any further duty cut can be doubtful. This is because gold imports have risen largely, and any further rate cut would lead to more imports. According to statistics, gold imports in India have doubled in the first three quarters of this fiscal year, i.e. imports stood around $38 billion until December 2021.

Hence, if the government considers the import duty cut but imposes GST, the end price for the consumer will not change without affecting the demand.

Capital Gain - Besides, capital gain on gold is demanded to be rationalised to boost its investment. Long term capital gain on gold is taxable at 20 per cent (with the indexation benefit). Whereas the rate applicable on investment in shares is only 10 per cent if held beyond one year. The rate and holding period of gold investments are higher than the equity investments, making the latter a preferred investment option. Capital gain rates must be rationalised to consider investing in this precious metal.

Development of markets for physical and financial gold- There is a huge amount of accumulated wealth of gold in India. The government should try to use these savings for the development of the nation by mobilising and channelizing the same to productive uses.
Encouragement of banks and non-banks to participate in the gold market- currently, there are no designated bullion banks in the country. The entire business transaction of the gold industry with the bank needs to be done through the bullion bank. This makes banking inconvenient for stakeholders such as refiners and jewellers. For example, currently, if a jeweller wants to take a loan against his/her holding in the metal, he/she has to convert it into a rupee, make a deposit in a bank and take a loan against that. Or the jeweller/refiner will have to approach an international bullion bank for the same transaction. Instead, having a bullion bank would allow the jeweller to take a loan against the metal, making the process much easier.

The government has always been supportive and has tried to maintain a win- win for all. We all hope this budget works mutually well across industries.

The Overall Review of Gold In 2021

This year has brought us plenty of surprising, serious, and sometimes even challenging events. Some of them were mind-blowing. A plethora of events flooded the global markets, turning around tables for assets like bullion dealers in India across all classes. Gold, too, was not spared. Let’s have a look at how gold performed as a whole and what exactly were the main influencers that mattered for gold investors and traders -
 
Inflation - Unsurprisingly, inflation, supply chain issues, and the pandemic were all over the news throughout the year, with markets and investors ringing the alarm, and even the analysts were warning that all these issues won’t go away in 2022.

To round off the year, we collected the key events and news stories of 2021 to see how they affected the global market and physical gold buyers, and what they could mean for the year ahead.
 
Omicron – Though not as lethal as the delta variant, the Omicron virus swept the entire world in a jiffy. This fast-spreading variant has disrupted holidays and put infectious cases soaring.

Once again, restrictions were imposed, bidders were closed and the threat of a new strict lockdown was announced by many governments. This, once again, has put tourism and travel companies into a fix, running down their businesses. Investors sold off their shares in such companies.

As we said, though this variant is not as lethal, it still helped gold prices in rising high, appeasing many gold dealers in India. The mellow down that was set in by vaccination drives, was cut off by this new variant.
 
Inflation stops being “transitory” - That’s it. Fed chair Jerome Powell has finally admitted that this runaway inflation is not “transitory” after all. The U.S. central bank has been stubbornly repeating its “transitory” mantra almost all year long, ignoring the big elephant in the room. But when inflation hit a 30-year high and investors started ringing the alarm, it became too hard to deny it. So the Fed has come up with a new plan for 2022, which is to curb runaway inflation by gradually increasing interest rates. This, in turn, means that it might become more expensive for both businesses and consumers to take out a loan, which can discourage spending and reduce the supply of money in circulation. This is supposed to lower inflation and bring back a red-hot economy to safer growth levels.

But, according to Bloomberg Economics, if the Fed increases rates three times next year and signals it’ll keep going, the U.S. might be facing a recession in early 2023. Even in Europe, inflation soared 4.9%, which is the highest level since 1997. Unlike the Fed, ECB President Christine Lagarde said there will be no rate hikes next year, but also warned that the inflation might last longer than expected.
 
Supply chains - We faced a lot of things during the global lockdown -
volatile swings in consumer demand
Labour shortages
a giant container ship stuck in the Suez Canal

On top of that, the global chip shortage has slowed the production of a wide range of goods, from cars to smartphones, leading to a halt in the production of major industrial products.  
Any form of disruption results in negative growth in the economy. This is turn, increased gold prices, making the gold dealers in India and bullion dealers in India very happy.

China’s real estate bubble - Chinas economy and real estate sector sparked worries in the market, which had a spillover effect worldwide. The infamous Evergrande crisis was all over the news in the past few months as China’s sprawling real estate giant struggled to pay its massive $300 billion debt.

On December 10, Evergrande Group was declared by Fitch Ratings to be in default. This means that the company has formally defaulted, but had not yet entered into any kind of bankruptcy filing or another process that would stop its operations.

Investors fear that this could shake China's economy and hurt economic growth, which in turn would affect the world economy. This fear led investors to shift focus to gold, as time and again, the yellow metal has proved to be a haven asset in such uncertain times.

Summarising it, we can say that overall it was a decent year for gold. Gold prices remained lower in early 2021 due to the overbought level. However, prices recovered around 6000 rupees per 10 gram from the low level of 43300 due to high demand from the domestic Jewellery market. At the end of 2021, Gold prices are trading firmly above 48000 per 10 grams, which is, slightly down from December 2020. Continuing rising cases of Coronavirus variant Omicron and rising inflation may further support Gold prices for the year 2022. Energy and the prices of the other essential commodities are soaring again due to supply interruption increased due to pandemic, which may ask for safe-haven demand. We are expecting Gold prices to move towards higher in 2022.

Stronger Investor Demand Expected For Gold

 Gold’s rather sharp drop late last month preceded oil’s plunge by a few days. Given the inflation building in the system, this drop came as something of a surprise. However, on its latest 2-year chart we can see that this drop was something of a “storm in a teacup” with the price back down in a zone of support near to its moving averages and the overall trend remaining neutral for now. It is worth noting that gold’s seasonal turn strongly positive in just a few days from now and silver’s do early next year, so there is a good chance that we are at a great buy spot for the sector here.

Silver took quite a hit too and is now near to the bottom of the large trading range that began to form in mid-2020. Failure of the support in the $21 - $22 area would lead to further losses but that is only likely to occur in the event of the stock market being pushed off its perch, and there is still no sign of that. Silver’s seasonal are at their best by far all next month, January, so, as mentioned above concerning gold and gold coins in Mumbai, there is a good chance that we are at a great buy spot for the sector here.

Gold and gold coins in Mumbai prices held steady on Tuesday, caught between lower bond yields and a stronger dollar, as investors watched for signs of how soon the US central bank could wind down pandemic support measures when it meets later in the day. Spot gold was almost unchanged at $1,787.50 per ounce during early trading hours, and US gold futures were nearly flat at $1,787.90.

Market participants and bullion dealers in India will closely track the upcoming Federal Open Market Committee meeting to see how the central bank reacts to elevated inflation, which will result in likely larger price moves. The dollar steadied, limiting demand for bullion for buyers holding other currencies. Meanwhile, US Treasury yields ticked up from a one-week trough touched in the previous session, also pressuring gold.

On the global stock markets, investors are currently cautious and take cover. The attention of market participants this week is primarily focused on the upcoming central bank meetings from the middle of the week. For Tuesday's trading, negative signs are expected in Europe, after the markets in the US and Asia have already gone into reverse gear.

The crucial week is headed with a lot of excitement as the US Fed will meet for the last time for the calendar year 2021 on 15th December. They will meet to decide the trajectory of inflation from ere. GDP outlook and of course the action on speedier taper on bond purchase program, which is presently running 30bn taper per month.

On Friday, Dow gained +216, and DOW FUT managed 36000+ once again on ease of worries over OMICRON virus threat as to date no fatalities have been reported anywhere due to this new variant. Overall, the view on gold should be clear in the short term after the Fed’s key verdict on 15th December.

The US Federal Reserve is likely to raise interest rates. However, this will not change the environment of negative real interest rates, which is favourable for gold and gold coins in Mumbai. This speaks for a stronger investment demand again.

Is Gold Heading To Regain Its Safe Haven Appeal

Since the early 1980s, the major factor that has driven gold prices for decades were growing debt, negative interest rates and market instability. Inflation wasn’t of really much concern. Gold jumped from under $300/oz in the early 2000s to over $2,000/oz last year and has since hovered around $1,800/oz, much to the chagrin of the gold dealers in India. Meanwhile, Christian noted, the correlation between inflation and gold has been low in the past couple of decades, and at times negative, though it may be making a tentative return.

Gold prices went on a volatile ride during November, rising toward USD 1,900 per troy ounce (oz) in the early stages of the month, as official inflation rates in the United States topped 6% year on year. The precious metal was unable to hold onto these gains, with gold plunging more than USD 100oz in a couple of days after Jerome Powell was confirmed to serve another term as the Chair of the U.S. Federal Reserve.

Despite the intra-month swings, gold ended the month up 2% and has now climbed more than 100 US dollars (+7%) since the lows seen in late March 2021. This sharp rise in the yellow metal has fuelled speculation about bullion re-emerging as investors’ haven in the wake of Omicron virus concern, making it a good day for the bullion dealers in India,. According to commodity market experts following are the main reasons that are rerating a demand for gold and silver -

• Rising Global Inflation - With inflation hitting multi-decade highs this year, investors have started to reconsider gold as an inflation hedge, and some analysts have boosted their near-term forecasts on the back of rising prices.
• Asset Purchase - Fed policymakers look likely to accelerate the wind-down of their asset purchases when they meet later this month as they respond to a tightening labour market and move to open the door to earlier rate hikes than they had projected. So, the gold and silver price may further scale northward if the Omicron virus cases continue to rise further for a longer time, giving a sigh of relief to the gold dealers in India.
  Gold prices held steady on Monday as market participants weighed the prospect of a faster ending to pandemic-era asset purchases by the U.S. Federal Reserve after data suggested the labour market was rapidly tightening.
• Data - The U.S. employment growth slowed considerably in November, but the unemployment rate plunged to a 21-month low of 4.2%. After a turbulent week in gold and the U.S. equities, the markets were hit with a mixed employment report from November. Despite the big miss in the headline number, the details were quite optimistic. The latest data showed the U.S. economy only adding 210,000 jobs last month versus the expected 535,000.
• Interest Rates - Reduced stimulus and interest rate hikes tend to push government bond yields up, raising the opportunity cost of non-interest bearing gold.
• Economic Collapse - The IMF is warning of “economic collapse”, which should get headlines. Not because the IMF have any kind of track record of being timely or right about anything, but because the Fund so rarely says anything negative for fear of being seen as precipitating the crises which the policies it imposes always end up creating anyway.
• Omicron Virus - As fears mount over the newly identified coronavirus variant - Omicron, governments all over the world are scrambling to protect their citizens from a potential outbreak. The new mutation, being potentially more transmissible, was first discovered in South Africa and has since been detected in Australia, the United Kingdom, Germany, Israel, Italy, the Czech Republic, and Hong Kong.

Many events are happening around the world, and many more are to come. Of these, the ones that need to be closely watched -

• The U.S. inflation data on 10th December.
• FED FOMC interest rate decision on 15th December.
• An RRR cut from China. China Securities Daily says a cut could come as soon as this month.
• K. ministers announce new COVID-19 restrictions for travellers entering the U.K.
• Biden and Putin to have a phone call this Tuesday (one for the diary).
• Japan PM Kishida says to shorten the waiting period between vaccine and booster shot.
• Swiss National Bank (SNB) vice-chairman Zurbrügg to step down at the end of July 2022.
• The U.S. to fast-track revamped vaccine in the battle against omicron.
• Germany October factory orders -6.9% vs. -0.5% m/m expected.

As these uncertainties continue to grip the markets, will gold be able to find its safe-haven appeal once again?

Inflationary Pressure Continues

Gold prices bounced back on Wednesday, holding near their highest levels since June, as the worry of inflation continues to push investors toward the safe-haven metal. Gold prices jumped by more than $50/oz for multiple reasons, but yes, mainly inflation, exciting and satisfying the top gold dealers in India. Let’s have a look at the key events that have occurred and are most likely to transpire soon -

• Yields - The U.S. 10 year yields surged again beyond 1.60%. The benchmark U.S. 10-year Treasury yields recorded a modest climb on Thursday but retreated from a three-week high hit during the previous session. An auction of the 20-year bonds was also disappointing.

• Rate Hike - On Tuesday, Treasury Secretary Janet Yellen extended the potential U.S. Government's deadline default from Dec 3 to Dec 15. This deadline allows Congress more time to raise the federal debt ceiling as lawmakers also consider massive social spending and climate bill. Most Fed Voices now reassured that - to combat inflation, an emergency route for interest rate hike cannot be ruled out. The rate hike has always been a major influence on gold, which is a good thing for the top gold dealers in India.

• Bond Buying - In the near term, the reductions in the purchase of signal assets may be speeded up to fight inflation or if the market believes rates would rise sooner than anticipated. The U.S. central bank began phasing out its bond-buying this month and expects to end purchases altogether by mid-2022. The U.S. Federal Reserve will only complete asset tapering in mid-2022, Chicago Fed President Charles Evans said on Wednesday. However, the central bank will continue to monitor whether record-high inflation levels will come down as he expects, Evans added. The wind-down of its bond-buying program will not be completed until the middle of next year, even if the central bank checks whether high inflation eases.

• CPI - The latest U.S. inflation data showed a sharply higher CPI for October with a headline rate of 6.2%, the highest in over three decades. Across the Atlantic, a jump in U.K. inflation in October raised expectations that the Bank of England will hike interest rates in December. The consumer price index grew a higher-than-expected 1.1% month-on-month and 4.2% year-on-year.

• Inflation - The market participants are focusing on the real threat of spiralling inflation, that economies are facing globally. The U.K. reported that inflation has now hit a 10-year high. In the U.S., the current inflation level is at a 31-year high, coming in at 6.2%. Mexico currently has an inflation rate of 6.24%, and many South American countries are running double-digit inflationary levels, such as Argentina (52.1%), Brazil (10.67%).

The underlying support for gold and silver remains the inflationary pressures we continue to see in the market. Currently, we cannot be sure where gold is heading because uncertainty levels are very high. There is no clarity related to the U.S. Dollar's performance and the likely response of the U.S. Fed and other central banks to inflation.

Bullion, considered a hedge against inflation, has gained on the back a surge in consumer prices in the U.S. and Europe, making the bullion dealers in India super happy. But that has also bolstered bets for early interest rate hikes, which would increase the opportunity cost of holding non-yielding gold. Until the Fed signals an accelerated taper, gold should hold its current $1,850 and $1,875 range.

Based upon our economic recovery occurring at a much more prolonged period than originally anticipated and the vast amounts of government capital that have been used to aid in that recovery, it is no wonder that market participants have once again focused upon the safe-haven asset that for hundreds of years have kept up with inflation, which is gold.

Bullish Momentum For Gold

 Gold ticked to a fresh 2-month high of 1,821 on Monday following the speedy recovery during the past two trading days, which boosted the price by a whopping 2.7%. Gold finally settled near the top end of its daily trading range and touched a fresh two-month high around $1,825 during the Asian session on Tuesday. Overall, markets are looking better by the year-end as the Fed taper announcements are due, and with a $90B bond purchases program per month, and later would be decided in the short term. Gold is at an interesting juncture now, both technically and fundamentally speaking. Here are some of the key factors influencing gold right now - 

• Real yield - Real yields are the bond yield minus inflation. Falling real yields are suitable for gold, and rising real yields are unsuitable. The recent patient stance from the Fed means that the recent surge in the US bond yields can pull back.
• USD - Time and again gold has always been compared with the USD. The US dollar traded lower against all the major currencies on Monday despite a good jobs report and a rise in the Treasury yields. The greenback typically takes its cue from yields, as a brighter outlook for the U.S. economy spurs rate hike expectations which can create demand for the greenback. However, over the past week, we’ve seen the correlation diminish with the dollar completely decoupling from yields in the last 24 hours.

  Remember that although gold is a commodity, the XAUSD often acts as a sort of hybrid between a currency and a commodity. Now, to get the very best opportunities for gold, we also need to see the USD moving in a way that complements gold. The USD has a strong impact on gold as the strength hinders gold, and the weakness of USD helps gold soar higher. A patch of USD weakness and then gold should surge strongly higher into $1900.

  Gold’s seasonal demands are excellent around the end of the year. If you take the time between now and the end of February, you can see that gold has risen 72% of the time in the last 25 years and had an average return of 3.89%. The physical demand for gold often picks up around the end of December. So, the end of December is the best time from a seasonal perspective to purchase gold and gold coins in Mumbai.

• Inflation - The U.S. inflation numbers are due for release this week, and economists are looking for hot numbers that will add pressure on the Federal Reserve to consider rate hikes next year. At the same time, some USD traders are worried that the stickiness of inflation could squeeze consumers in the coming months. Now, this means that real yields should fall as well since inflationary pressures remain the same. This is what has been lifting gold post the Fed interest rate decision.So, this is the key to note. As long as the Fed remains patient on rising inflation rates, then that will support gold and gold dealers in Mumbai.

Prices of gold and gold coins in Mumbai are off the two-month highs but maintain their bullish momentum, as September highs of $1834 remain in sight. Gold price continues to remain underpinned by the market uncertainty over the next policy move by the Fed after Chair Jerome Powell said that they remain patient on rate hikes a week ago. The bright metal remains at the mercy of the dynamics in the US dollar and the Treasury yields, as investors await the US inflation data for the next direction in the gold price.

The chance of gold heading towards $1900-$1915 by the end of the year is high since it weathers $1775-$1800 so well in the past six to eight weeks. Now for the week, the $1800-1850 range is on the cards for extremely short-term traders.

The focus is now on Wednesday’s Consumer Price Index inflation data that could test the Fed’s stance on rate hikes, as tightness in the labour market combined with global supply chain issues could result in another high reading. It also comes on the heels of several Fed officials expressing growing concerns over more persistent price increases. But the Fed vice-Chair Richard Clarida and Chicago Fed President Charles Evans suggested a rate hike was not yet on the cards.

Gold has benefited from near-zero interest rates introduced during the pandemic as they reduce bullion’s opportunity cost. To summarize, the gold dealers in Mumbai expect a push for more gains in the short-term, though whether it will exit its three-month-old range area above $1,833 remains to be seen.

Time For Gold To Wake Up

 Last week was highly volatile. Gold had a pretty short covering on Friday as it ranged from $1790 - $1815, but just within a few hours, it reclaimed back $1785 - $1790. Silver, on the other hand, was up to nearly 10% in the past 4-5 weeks. And now, after forming a base near $23.75-24.00, it steadied for $25.50 early this week.

Yellen said categorically that this higher inflation could last until mid-2022. In retrospect, small investors remained negative towards gold concerning gold ETF holdings falling consistently over the last two weeks. With the US Dollar forging a temporary lower low to start the new week, we give the edge to the bull camp and bullion dealers in India. As indicated already, surging Bitcoin and other inflationary signals could finally be "waking up" gold and silver!

The US markets are again hitting new life highs with Tesla staying under the spotlight as it attained a $1 trillion MACAP. Gold almost hit our target near $1713, but silver legged the momentum. Gold ended above $1800 on Monday for the first time since 14th September. But gold will face a hurdle in the short term by staying near $1815 - $1820. It could see a big round of short-covering while taking out of this band. However, before that, $1795 - $1800 consolidation is possible.

There was a slight recovery in the dollar, but this was not a good thing for gold and gold dealers in Mumbai. However, prices are not expected to fall sharply, as investors have realised that the bigger picture is even more uncertain and that risks are still just behind the corner.

Gold prices fell on Tuesday after a five-session rally, as the dollar steadied, and investors awaited key central bank meetings for clues about rate hikes amid rising inflation concerns. Investors have shifted focus to the policy meetings of the Bank of Japan (BoJ) and Bank of England, and the European Central Bank (ECB) due on Thursday, followed by next week’s U.S. Federal Reserve. The US GDP data for the third quarter was also on their radar.

Gold is often considered as an inflation hedge, though reduced stimulus and interest rate hikes push government bond yields up, increasing non-interest bearing bullion’s opportunity cost. Gold should remain relatively well-supported in the current inflationary environment until we get a hawkish pivot from the Fed.

Given the tremendous inflation pressures currently exerting themselves in the economy, the late 1970s may be the best model for what to expect going forward. It would mean the rising price levels are combined with a weak economy (stagflation). And given that the US debt load today is over four times higher as a share of the economy than it was in the 1970s, investors should brace for the potential of a far greater financial crisis. When it comes to a financial crisis, investors will want to have gold on their side based on data from yesteryear, pleasing the gold dealers in Mumbai. It is well known that in times of uncertainty and a financial crisis, gold has always proved its worth as it has vastly outperformed other assets in its class.

From a micro perspective, investors only have to look at the current market landscape, and as many analysts are eyeing inflation as the next major market disruption. The talks of stagflation, higher interest rates, and low economic growth could provide the perfect backdrop for investors to start adding gold. Should the markets get shaken up again, gold can offer an ideal respite from equities exposure.

Gold Rallies Over Inflation Worries

 The Fed is pursuing a program of “buying up the world”, which is very easy to do if one has the capacity to create infinite quantities of money out of thin air. A big reason for the lockdowns was to stifle the huge inflation that this policy would otherwise engender by killing the economy – the name of the game is wealth transfer, up the pyramid to the very top. This operation is working well for them, which is why the stock market has marched ever higher as the economy has collapsed, so much so that it is hard to see why they would change the course.

After CPI at 0.4% monthly growth and a 13-year high, there is a sense of fear from the US Fed to IMF as to what might unfold on the inflation trajectory going forward. On Wednesday, gold zoomed by +$40, i.e. 2% on Comex, to close above $1785-1790, which is a crucial barrier and now eyed above $1810. Just a month ago, gold was observed trading at these levels only.

Gold prices hit a one-month high on Thursday as the US Dollar and US bond yields eased, while investors and the largest bullion dealers in India assessed how strong inflation data could shape monetary policy. Spot gold rose 0.4% to $1,799.30 per ounce by 1100 GMT, having earlier hit its highest since Sept 15 at $1,799.95. US gold futures gained 0.4% to $1,801.30. The US dollar and benchmark US 10-year Treasury yields slipped. And by the rule of thumb, a weaker dollar makes gold cheaper for buyers in other currencies.

Gold rallied after data showed US inflation rose sharply. Prices paid by US consumers rose 0.4% from August. In comparison with a year ago, the CPI rose 5.4%, matching the largest annual gain since 2008. The broadness of price rises suggests the likelihood of that being transitory is falling. We witnessed the Treasury yields fall, and the weakening of the US Dollar resulting in strong support for the precious metals, with spot prices threatening to break above $1,800/oz. This is despite the Fed indicating it would likely start tapering in mid-November or early December. They don’t care if it leads to hyperinflation, which will crush the little guy but not affect them. But naturally, if hyperinflation it is, then gold and silver will soar, leading us to like silver so much here. Now, of course, if gold and silver soar, then so will other commodities like copper, all of which you can find at any gold dealer in Mumbai.

Gold Could Possibly Revisit Its Peak

So far 2021, has been a disappointing year for gold and top gold dealers in India. It has failed to attract new buyers despite inflation fears and debt worries. Year-to-date, gold is down more than 7% after selling off at the $1,800 an ounce level multiple times.

Gold rose to another level over COVID concerns. However, the main reason for the gold downfall has been a strong US market. The US stock market has not witnessed a major pullback since the 2020 low. If equities are entering a more sustained wobbling period, we see gold, Treasury bonds and Bitcoin as top contenders for outperformance.

It can also be emphasized that the investments in gold and Bitcoin are viewed as insurance, and not as short-term trades. These are considered to be part of a long-term portfolio that seeks to balance the long-term risks and opportunities in the current global context.

Worries about the debt ceiling are beginning to rattle investors as the deadline nears for Congress to raise the U.S. borrowing limit to avoid a historic default on U.S. debt. After Powell’s stern remarks on the debt ceiling, the DOW plunged to 500 before recovering somewhat. The USD index was 93.7 on low, and gold attempted $1771 an ounce. The FED president, Bullard, says that they are now worried that the inflation crisis is on the upside. After crude hit a 7-year high on Monday, mounting inflations has become a serious concern as natural gas is also at a multi-year high at the moment. It could just be a possibility that the FED’s inflation measure, i.e. PRICE PPE INDEX, may hit above 6-6.6% by year-end, and FED may not be able to do tapering at all. Gold had a good close on October 5, well above $1762, as a result of a critical hurdle after Bullard comment in inflation and subsequent fall in DOW and USD.

The Federal Reserve's potential plan is to reduce its monthly bond purchase by the end of the year continues to weigh on the gold market as prices remain tethered to support around $1,750 an ounce. However, one investment firm continues to see gold prices pushing thousands of dollars higher in the long term.

Gold comex was attempting an elevated bottom above $1740-$1750 bands while on a host of concerns. It is very well in a position to attempt $1785-$1795 before the payroll comes on October 8. The US Senate is under pressure after a stern warning from President Biden as he called for an immediate hike in the debt ceiling before a catastrophe situation emerges for the financial markets.

The recent market movements and bullion dealers in India suggest that investors, after months of ignoring a debt limit standoff, seem to be taking the once-unthinkable possibility of a U.S. default seriously. Today, Congress seems to be locked in a stalemate, with the clock ticking down and a potential debt default looming in October. With this once-unthinkable scenario now becoming more likely, let’s see what a U.S. default would look like for physical gold investors and how they could prepare for it. There could be two possible scenarios -

Scenario 1: If the US debt becomes 'unsustainable' and tops 200% of GDP, then the gold price will go up.

Scenario 2: If the ceiling is raised and the debt-to-GDP ratio goes down, the gold price will hover above the $1,800 level.

If a US default were to happen, it would have major repercussions for the country and the global economy, potentially creating a historic financial crisis. In times of uncertainty, investors usually turn to safe-haven assets like gold to protect their portfolios. So, no matter which way the debt ceiling situation goes, it seems RSBL gold and gold coins in Mumbai should retain their value, offering a haven of safety, as it has done over the centuries.

There Is Upside Potential For Gold

 Gold fell $40 last week and had broken the consolidation support band of $1780. USD index rose to 93.25, and the US 10y is 1.37. But September 22, i.e. the coming Wednesday, will be crucial as the Fed will give its verdict at 11.30 PM IST. After Thursday’s $50 slide, gold price looked to stabilize on Friday, although held on to multi-week lows near $1750. The main reasons behind this fall are -

• The US Retail Sales surprised to the upside in August, showing signs of strengthening economy and reinforced Fed’s tapering bets resulting in a fall in gold prices.
• On Friday, the gold price attempted a bounce but lacked conviction amid a broadly firmer US dollar.
• The troubled Chinese property developer giant Evergrande’s potential default story dented the investors’ sentiment and lifted the dollar’s safe-haven appeal. China’s real estate company “Evergrande” is supposedly in a cash crunch with a debt of over $300 billion.
• This company is the most indebted company in the world at the moment, and if it defaults, it will have global ramifications and will cause significant damage to global equities and risk assets.
• The Delta variant of Covid 19 created havoc with 2000 single day deaths.
• While rising Treasury yields on tapering bets also aided the greenback, limiting gold’s upside attempts.

 

However, gold and gold coins in Mumbai managed to sustain the lows and opened with modest gains in early trading hours on Monday in the USA, on some safe-haven demand amid a rough start to the trading week, much to the relief of the gold dealers in India. The reasons behind this recovery are -

• Global stock markets were sharply down in overnight trading.
• The U.S. stock indexes are also pointed to heavy losses and four-week lows when the New York day session begins.
• The cryptocurrencies were getting smacked on Monday, amid the risk aversion and on recent speculation, major countries like the U.S. and China will move to more tightly regulate them.

 

Gold prices were subdued on Tuesday as cautious investors and top gold dealers in India braced for U.S. Federal Reserve’s guidance on tapering its assets and interest rate hikes, while a risk-off sentiment stoked by China Evergrande’s debt crisis limited losses in the safe-haven metal.

Bullion is observed as a hedge against inflation and currency debasement likely to result from the widespread stimulus. A hawkish move by the Fed would diminish gold’s appeal, while an eventual interest rate hike would also raise the opportunity cost of holding the non-interest-bearing asset. All eyes are on whether the Fed will announce that it will begin asset tapering as it hands down its policy decision on Wednesday. The central bank will also release fresh economic projections and a new read on the officials’ expectations vis-a-vis interest rate hikes.

The Fed is likely to give an outlook on how soon and how often they think the economy will need interest rate rises over the next three years at their policy meeting on Wednesday.

Policy decisions by other central banks (Japan, UK, Switzerland, Sweden, Norway, Indonesia, Philippines, Taiwan, Brazil, South Africa, Turkey and Hungary) are also lined up this week. We believe that if gold regains its traditional behaviour, it should rise from these levels and counter the headwinds of moderately rising Treasury yields and inflation cooling a little. Gold is currently underpriced relative to our model forecast. If gold’s behaviour snaps back, there is upside potential for the metal.

Gold Looks Strong From Here

Many arguments have been made in favour of holding gold, including that it offers protection against inflation, is a store of value at times of crisis and is a hedge against stock market volatility. In reality, while gold has exhibited all of these qualities at various points, it has proved to be an unreliable friend. In 2020, for example, its price fell in the second half of the year despite the rising inflation. But, now it seems that the tables are turning over for gold.

Currently, inflation is triggering a mixed response in creating a demand for the yellow metal. Retail investors are snapping up gold coins to protect against inflation, but it isn’t enough to offset the selling in other market domains. The gold dealers in India also witnessed gold hovering around $1800 levels, and it failed to break this strong resistance level.

The data numbers coming in from the U.S. weren’t quite impressive, which signalled that the Federal Reserve might now start tapering units in December. However, the effect it created on gold wasn’t significant. There is portfolio diversification into other assets like crypto, and even though vaccination drivers are in full swing and economies are recovering, gold still finds a good hold in the market and has its loyalty intact. The reasons for this are -

 

• ECB - Analysts were looking ahead to the European Central Bank’s meeting on Thursday for clues about what might happen to the gold price, but the commentary had little effect on the yellow metal. The ECB left interest rates the same and announced that it is trimming its emergency bond purchases but insisted that it isn’t tapering. This had a positive effect on gold, and it didn’t succeed in breaking down the yellow metal.

 

• Delta Virus (Covid 19) - Perhaps the biggest concern for gold prices right now is the Delta variant of Covid-19. Gold prices rebounded as investors and even the bullion dealers in India grew cautious over the COVID impact on the economy after NIAID director Fauci reiterated we are still in the middle of a pandemic. Americans are now getting infected with COVID-19 at 10X the rate needed to end the pandemic. The Fed’s Beige Book showed economic growth is getting rattled by the Delta variant, and that will continue to weigh on the economic outlook that will further strengthen gold.

 

• S. Data - With the CPI data not standing up to expectations, for some that push a possible (taper) announcement a little bit further down the road, and that should be fairly supportive for gold prices. Underlying U.S. consumer prices increased at their slowest pace in six months in August, lending credence to the Fed’s view that high inflation levels were transitory.

The data also raised expectations that the Fed may go slow on unwinding economic support measures and keep interest rates near zero for some time. The U.S. central bank is due to hold its two-day monetary policy meeting next week. Gold tends to gain when interest rates are low, which reduces the opportunity cost of holding non-yielding bullion.

 

• Central Banks - An underlying economic activity incentivise central banks to keep the taps flowing, the key short-term driver of gold prices. The stimulus trade, which is very much active, is also good news for gold. Precious metals will find support as central banks slow their stimulus reductions.

So what’s next?

The above key indicators, clearly state that gold is here to stay. Time and again, it has proved its worth as a safe haven asset in times of uncertainty and also as a hedge against inflation. Central banks will also continue to support gold prices with their buying, benefiting the top gold dealers in India.

It seems clear that apart from the above-mentioned concerns that what is driving the precious metal right now is the dollar. It continues to remain important for gold prices even though its impact on the metal appears to have weakened. The fact that the Fed and the ECB are maintaining lower interest rates could provide support for gold alongside weak economic growth. However, gold appears to be in a holding pattern for now and looks strong from here. 

Outlook For Gold Looks Bullish From Here

 The yellow metal has stumbled much of this year as vaccine rollouts, stronger-than-expected recoveries in some economies and worries over rising interest rates dimmed its appeal.  However, Jackson Hole, Delta variant and inflation continue to be the biggest challenges around the world.

All eyes were focused on Powell’s speech which was is slightly dovish but not dovish enough to jump-start any large-scale buying in precious metals. RSBL gold hit a 3-week high on Friday, notching its best weekly gain since May after Federal Reserve Chairman Jerome Powell failed to give a clear timetable for tapering U.S. stimulus spending at the central bank’s much-anticipated Jackson Hole monetary policy symposium.

The gold market saw immediate gains after Federal Reserve Chair Jerome Powell sounded more cautious than other Fed officials when talking about tapering, stating that the central bank could start reducing its $120 billion in monthly bond purchases this year. The spike in the prices relieved the gold dealers in India. In his speech at the Jackson Hole economic conference, Powell stated that the U.S. central bank will remain patient and reiterated that he wants to avoid chasing “transitory” inflation and potentially discouraging job growth in the process - defence in the effect of current Fed policy. During the speech, Powell also noted that “more progress” has been seen in the jobs market, but this growth is now coinciding with “the further spread of the Delta variant,”. He also stated that there is more ground to cover to reach maximum employment.

Gold bounced over 1% on Friday after Federal Reserve Chair Jerome Powell stopped short of signalling when the U.S. central bank would start withdrawing its economic support and reiterated his view that current price spikes are transitory. Strengthening gold further, Powell used the Delta variant as a shield to buy time for more employment data before a taper announcement. The Fed won’t make a taper announcement at least till the next two months. Lending a further boost to bullion, benchmark U.S. Treasury yields and the dollar weakened after Powell’s comments.

The dollar and U.S. Treasury yields tumbled while risk assets from stocks to commodities, including oil, rocketed on the move. Gold, while labelled as a haven, got a ride higher as well, given its sensitivity to inflation, which typically propels the yellow metal’s prices.

Further, we saw gold demand coming in from China and Germany, lending support to the yellow metal. Demand for gold, specifically heritage gold, was on a spike. This rise in demand led to the strengthening of gold prices, pleasing the top gold dealers in India. Moreover, as per the World Gold Council, demand for physical bullion in Germany, traditionally the biggest coin and bar buyer in Europe, was the highest since at least 2009 in the first half. Germans, in particular, are pouring into the metal as a hedge against rising inflation and strengthening gold’s appeal as a haven asset.

Overall the outlook for gold looks bullish from here, finally giving a sigh of relief to the largest bullion dealers in India.

Gold’s Near Term Looks Mixed

The gold market looks a little chaotic as prices have been unable to break resistance at $1,800, discerning a lot of gold dealers in India. At the same time, sentiment among retail investors and Wall Street analysts shows no clear direction in the upcoming term, concerning even the largest bullion dealers in India. Investor sentiments have been relatively volatile in the last few months. Even though gold stabilized after last week's flash crash, it failed to breach the $1,800 an ounce level. A very keen eye is being kept on the delta variant, Afghanistan headlines, and the Federal Reserve's tapering signals at the upcoming Jackson Hole meeting.

Even though gold was quick to stabilize above the $1,700 an ounce following a flash crash last week, there is not enough interest in gold to keep prices trending higher, and gold failed to breach the $1,800 an ounce level. This puts it at risk of another significant selloff. Apart from this, more reasons can be cited as being responsible for gold's behaviour -

• Chinese Economy - The moves came against the backdrop of a jump in Chinese equity markets – after President Xi Jinping hinted at more stimulus measures to support the economy in an editorial over the weekend. The stronger tone in stocks capped gains in gold keeping the virus concerns aside.

• ECB - Finance ministers from the eurozone are due to discuss a document that could lead to the relaxation of fiscal rules that are governing the bloc. This will allow more room for fiscal stimulus and reducing the risk of further rate cuts from the European Central Bank. Given that the ECB’s negative rates are a significant pillar for European portfolio gold purchases, any clear commitment to fiscal easing could be marginally negative for gold. On the flip side, the Afghan chaos is unravelling with the US President Biden saying that the worst still awaits from Afghan. Biden is being criticized for his Afghan withdrawal as his nationals and citizens of many other countries could not get out of the country. All these odds are helping gold to sustain $1775-$1780 the whole of the last week.

The market tilt is slightly negative with the close under pivot. The near term upside target is $1795.30. The next area of resistance is around $1789.5 and $1795.30.

The main event next week is the Jackson Hole symposium. The headline discussion will be 'Macroeconomic Policy in an Uneven Economy,' but the focus will be on bullion markets in India. The discussions will surround what appears to be an impending tapering of the Fed's QE asset purchase program and low-profile US economic data flow before Jackson Hole comment on Fed’s Powell on August 26. The U.S Delta variant is also another rising factor that is impacting consumer sentiments. This will result in gold taking on haven while we reiterate crossing 1802 -1805$ this week.

Gold's near-term outlook looks mixed because the Federal Reserve has indicated tapering. If they continue to reiterate that view, it will weigh on gold as we could see the dollar strengthening and a rally in yield. We do have a two-sided market at the moment. One side is that the dollar is relatively strong of late due to the expectation that the Fed will move towards tapering, based on the recent commentary. Another side is that we still believe there is underlying support in the gold market right now. We are starting to see some drags from Delta on the global economic recovery. 

Tremendous Support For Economies And Gold

It’s been exactly a year since gold peaked at $2070 amid Covid concerns. And a year later, we are witnessing the gold prices crashing down. Initially, gold prices were capped by bullion banks capitalising on print taking after a sharp rise from March 2020. But currently, gold smashed lower in Asia Pacific trading, in a relatively quick drop from $1,750 to $1,677 as sellers continue the post-NFP momentum to this week.

RSBL gold slipped to an over four-month low on Monday as solid U.S. jobs data fueled concerns of a sooner-than-expected interest rate hike, which could increase the opportunity cost of holding non-interest bearing bullion. By putting things together, we can get a clear idea behind this sharp fall in gold.

• S Jobs report - The first being, as mentioned, that the selling momentum picked up after Friday's strong US jobs report. Gold had been consolidating since mid-July prior to the key risk event before finding fresh momentum to firmly breakaway below $1,800. Data from the U.S. Labour Department showed employers hired the most workers in nearly a year in July and continued to raise wages. That underscored remarks by Fed officials suggested a sooner than anticipated roll-back of pandemic era stimulus on the back of a solid labour market recovery.

  The US non-farm payrolls printed a strong 943000 non-farm job additions in the US during the month of July, stronger than the 870000 jobs as expected by the analysts and 850000 that was printed a month earlier. The latest data helped cement the thinking that the Federal Reserve (Fed) is moving towards the ‘substantial’ progress that it is looking for to start easing the bond purchases.

• Yields - As a result of a stronger than expected jobs report, the US 10-year yield jumped above the 1.30% mark after the data release and is now set to recover towards the 2% threshold to the end of the year. When we closely observe the commodities markets, we get to understand that any prospect of higher yields is a threat to gold. RSBL Gold is not doing well, and Friday’s strong US jobs figures have come as a slap on gold’s face. Moving forward, higher US yields will continue increasing the opportunity cost of holding the non-interest bearing gold, which didn’t even fully benefit from the overshooting inflation and the ultra-low US yields recently, thus resulting in a further sell-off.

• Stock Markets - Asian stock markets kicked off the week on a positive note, although the US indices had nothing more exciting than mixed performance after the announcement of strong jobs data on Friday. The US jobs data gave a small boost to the Dow and the S&P 500 which closed Friday’s session 0.41% and 0.17% higher respectively. Even though the strong economic data and prospects of a tighter US policy are better for value stocks, the rising Covid cases should keep the tech stocks in demand, regardless of a tighter Fed policy. However, the tech giants can expect a boost in prices.

• Vaccination - One of the reasons why gold dealers in Mumbai crashed from its peak was the worldwide vaccination drive. There is a general belief that the vaccination and the introduction of the vaccination certificate will prevent businesses from going through strict lockdown measures again. The ‘certificate’ setup will allow them to stay open instead and continue functioning with those who can present a valid vaccination certificate. The idea is obviously to get as many people vaccinated and get out of the crisis as soon as possible. In spite of a third wave threat, economies across are opening up and gradually moving towards safety. This could also possibly be a reason for the drop in gold prices.

• Inflation - The latest update on the US consumer price inflation is due on Wednesday, and the expectation is a certain steadying in the US consumer prices near last month’s 5.4% print. China released softer-than-expected consumer prices this Monday, while producer prices advanced to 9%, as an indication that the pressure on factory-gate prices remains strong.

Gold could fall towards $1,700 in the near term, however, we are still going to see a tremendous amount of support getting pumped into the global economy, and that should still support RSBL gold.

Triggers expected to drive a rally in gold prices

 Gold lately has seen quite a lot of volatility. Last week we saw gold being the best performing precious metal, while this week it opened on a negative note.

The dip in Treasury yields last week helped boost the appeal of the non-interest-bearing metal suggested RSBL, one of the top gold dealers in India. Gold then stabilized later in the week as the dollar and Treasury yields pared some of their gains made in the wake of U.S. inflation data that came in significantly higher than expected. Prices paid by U.S. consumers surged in June by the most since 2008, topping all forecasts and testing the Federal Reserve’s commitment to sticking with ultra-easy monetary support for the economy.

Last week, the yellow metal found some life after Powell's testimony pushed back on recent hawkish pricing, while central banks and physical buyers also helped prop up markets. But, even as macro growth angst catalysed a re-pricing in expectations for Fed hikes, gold still could not catch a bid.

Gold fell below the psychological $1,800 an ounce level as-

• The U.S. new home sales missed expectations in June with a fall of 6.6%. The prior month’s number was also revised down. 
• New home sales were at a seasonally adjusted annualized rate of 676,000 homes in June, the U.S. Commerce Department said on Monday.
• May’s sales were revised down to a rate of 724,000 units from 769,000.
• The market consensus called for sales to advance to 800,000 units in June.
• On an annual basis, new home sales were down 19.4% from last year’s estimate of 839,000 units.

Gold ticked down following the data release, falling into negative territory. The gold market isn't able to break free of $1,800 an ounce as it is stuck and waiting for a new catalyst.

When evaluating the gold market one of the primary drivers of gold’s perception as a store of value is interest rates. There are two ways to look at interest rates. The nominal interest rates, which is the headline interest rates such as the 10 year Treasury Yields, and real interest rates Treasury yields adjusted for inflation. As inflation rises and Treasury Yields remain the same or move lower, real interest rates decline. This reduces the cost of holding a non interest bearing investment such as gold. Currently, real interest rates in US are negative. Therefore, the opportunity cost of holding gold is minimal, or to some, actually demonstrating a better return profile than cash or Treasuries.

Analysts at RiddiSiddhi Bullions Limited opined that, historically, gold prices typically rise as real or inflation-adjusted Yields fall deeper and faster into negative territory. Gold price have struggled in 2021. Interest rate experiences have reset higher in February. However recently interest rates have declined to the lowest level in five months. And monthly CPI data has increased. Therefore, real interest rates have moved significantly lower. Using the core CPI data analysed at 4.5% and the 10 year yield of 125 basis points, real interest rates is now running at -3.25%. In theory this should serve as a tailwind for gold prices

While a slower global growth profile, matched with transitory inflation, should keep Fed tightening at bay and eventually provide a beneficial environment for gold, risks remain in the near term. Given that gold's recent underperformance against slumping real rates continues to suggest a lack of investor interest, and consolidation of current market pricing that may result in higher real and nominal rates could still send prices lower.

Investors might have to wait until September to see how the next recovery phase unfolds. A new wave of the COVID-19 virus is sweeping through the U.S- , if the virus continues to spiral out of control, putting the recovery at risk, and then he would expect to see renewed interest in gold.

The triggers working in favour of gold price rally in the long-term are rising concern of global inflation that seems to be persisting further and increasing number of Covid-19 cases, which includes the delta variant cases in the US, some European nations and South-East Asian countries. Outlook for gold is still bullish and any dip in gold price should be seen as an opportunity by yellow metal.

Dont take off your eyes from gold

 Since the beginning of 2021, gold has witnessed a 5 % drop till date. It has been a rough path for gold as investors rotate out of the safe haven trade into riskier assets. The gold market continues to struggle as investors focus on the potential for tighter monetary policy and transitory higher inflation pressures.

Top gold dealers in India confirmed that the gold markets have been challenging to trade recently due to a stronger dollar. It was the strong USD that was clipping gold's wings. But before that, the USD index slipped fin 93.2 to 92.7 and 10y gained firm 1.15% to 1.29% amid US economic growth, uncertainty on Delta variant and inflation. Benchmark U.S. Treasury yields continued their bounce from five-month lows, further pressuring the bullion

Gold was subdued in volatile trade on Tuesday as the dollar strengthened, curbing inflows into the safe-haven metal despite some concerns over a surge in COVID-19 cases.

Gold prices hit a one-week low on Wednesday, though they’re up almost 2% in July. Gold price is pressurizing the lows, flirting with $1800 amid a renewed risk-on wave that has gripped the Asian market, as traders shrug off COVID worries for now.

Gold was down on Thursday morning in Asia, remaining close to a one-week low. Yellow metal once again lost its shine ass dollar strengthened, risk appetite increased as concern over surging COVID-19 cases subsided

Gold prices extended slide to their lowest in nearly two weeks on Thursday on the back of a rebound in stocks and firmer U.S. dollar, while investors looked to the European Central Bank for their stance on policy.

Spot gold fell 0.5% to $1,794.58 per ounce during Thursdays trading hours.

On the other hand, Dow regained the entire losses of Monday’s crash. Asian markets were seen rejoicing this recovery and India followed suit. Amid all the chaos and uncertainty, the focus will now shift to the upcoming FED meeting to be held this Wednesday... Powell’s new views on Wednesday will be of paramount importance, unlikely to do a tapering and boost for gold. As mentioned the heightened inflation and feared to be signs of stagflation, is a booster for gold since no one will focus on Dow then. So $1792-$1795 is still an immediate support from where there should be a recovery to $1810-$1815 possible while protective stop is at $1787-$1785.

But rising inflation could be setting gold up for a rebound.  We actually do see inflation tick up here; you can expect that gold will kick in.

A surge in coronavirus cases in the United States and other countries however spurred some safe-haven buying of bullion in recent sessions, with gold rebounding as much as 1.7% from Monday’s one-week low.

A lot of people in the gold market have taken their eyes off the ball this year, but if we get more bad news on the COVID front and equities weaken, you could get just that flight- to-safety buy in a market that can wake up pretty quick. RSBL analysts were of the opinion that world economies were moving towards recovery, trillions of dollars in U.S. fiscal spending, and the increasing demand for many metals as part of the global energy transition, should support commodities in the longer term, contributing to higher inflation expectations. In addition, ongoing monetary stimulus, alongside expected fiscal stimulus, adds conviction to the "here-for-longer" inflation case. While there are plenty of long-term fundamental factors that support gold prices, dollar and inflation continue to remain the most influential ones.

Gold expected to reach new highs

In many of my previous blogs, I have mentioned as to how some macroeconomic factors will play a significant role in influencing gold prices. One of the main factors were inflation. And finally this key driver has brought in the much awaited rally in gold prices. 

Gold rallied more than 1% on the day as Federal Reserve Chair Jerome Powell said he hears America's inflation worries "loud and clear" while still viewing these price spikes as temporary.

RSBL analysts confirmed that gold notched a three week high on Wednesday following Powell’s comments. He said that inflation by all measures is running higher than expected. In fact, Chairman Powell, on Wednesday, acknowledged that inflation is above what the Federal Reserve is hoping to see. However, he tempered that statement by saying that this level of inflation will "moderate."

To be precise, speaking before the house financial services panel, Chairman Powell said, "Inflation has increased notably and will likely remain elevated in coming months before moderating."

The Fed has retained the stand that it will continue its current interest rate policy and monthly asset purchases until there was "substantial" progress towards its goal of full employment and stable long-run 2% inflation.

Prithviraj Kothari of RSBL stated that the monetary policy of the Federal Reserve prior to the pandemic and following recession was to keep inflation at a 2% target. However, the Fed has decided to let inflation run hot so that they can put their emphasis on maximum employment. The current inflation rate stands at 5.4%- the highest-level inflation has been at since the 2008 recession and largest increase since November 1991.

According to some market analysts, gold is seeing some renewed buying interest as Powell's comments appear to have a dovish tilt to them.

There was some havoc in the market as inflation gripped the US markets. Initial reaction from the Fed was a cool one. A denial mode continued, except he added that the policy changed will immediately come into effect if they feel that inflation is beyond control. So the imminent action will follow soon maybe taking few more weeks to taper. 

Meanwhile on Thursday, the Chinese GDP (2nd quarter) grew 7.9% and its industrial output grew 8.3%. 

While in the U.S PPI inflation stood at 1.0%- twice the expectation of 0.5%. USD index slipped to 92.4 and 10y yields more vigorously at 1.33%. 

What does all this mean to gold investors?-   the Federal Reserve is likely to continue their current mandate letting inflation continue to run hot until they see substantial progress towards full employment. With the inflation rate already at record highs similar to those seen in 2008, if, in fact, they do not raise rates in attempts to curtail rising inflation, we could see those numbers actually move higher. Not forgetting the fact that equities, which are an alternate to gold, do not qualify as inflation hedge.

Hence once again investors will move focus to gold which has time and again proven to be an inflation hedge tool.

And we all know what happens once demand rises. The yellow metal is expected to reach $2000 mark – a new target set by many investors in the markets.

Gold Cannot Be Written Off So Easily

 Gold has been on a tough ride since the start of the year 2020. To be more precise, since August 2020, when it pulled below its record highs of $2000 and later wandered there for a while before entering a significantly negative zone.

The main reason for its fall was the launch of vaccines worldwide over signaling global recovery. There was a point when gold raked. At one point, the price of gold hit a near 11-month bottom at under $1,674.

Similarly, the month of June 2021 was not that great for the yellow metal as well. The previous three weeks were woeful for gold as it cascaded from five-month highs of just over $1,919 to a seven-week low of just above 1,761 at one point. That was a loss mourned by the top gold dealers in India of almost $160 or more than 8% in just four weeks! And indeed, with all the FedSpeak and weaker economic data throughout the week, Gold - the recent decline for which was well overdone - finally found some footing, and the yellow metal soared a little high.

Gold finally clinched on Friday for its first weekly gain in four days and since its unceremonious fall from $1,900 levels. But the difference was hardly something for the yellow metal to boast about.

Gold was again up on Monday morning in Asia as investors digested the mixed signals from the U.S. Federal Reserves on monetary policy tightening after the release of tame inflation data. The main question about the temporary nature of the current inflation rate caused the yellow metal to close higher on the day and on the week, which is the first occurrence of a higher weekly close for gold in four weeks.

We saw a recovery in gold, over surging covid-19 cases across large parts of Asia. On one hand, this recovery weighed in negatively on the investors' sentiments and a relatively stable dollar on the other.

Viral cases were seen in Australia, Malaysia and probable a new variant or turd wave was expected in India. The delta strain has exploded high and hence, new restrictions and lockdowns are being expected in some parts of the world.

In addition, Indonesia is a key emerging market that is fighting hard to tame the growing viral cases while a lockdown in Malaysia is set to be pushed forward, further triggering gold bugs to hold support around the $1,780 per ounce price levels for the near term.

Inflation - Investors also continued to digest inflation data released by the U.S. during the previous week. The core personal consumption expenditures index grew a smaller-than-expected 0.5% month-on-month in May while growing 3.4% year-on-year. Gold prices rose as much as 0.8% after the release of the data, the central bank’s preferred inflation measure.

Consequently, gold bugs are rallying over monetary and fiscal stimulus support globally in response to the world’s most destructive pandemic, thereby boosting the bullion asset’s value despite an uneven pace of recovery between regions.

Gold will likely continue to stabilize going forward as most Fed Chair Powell’s policymakers agree with him that inflation will be transitory.

Investors should think about the long term and pay truly little attention to what is happening in the short term. Looking at the near-term data, gold prices might plunge a little bit more. However, the lower the price of the precious yellow metal drops, the better a buying opportunity it becomes. Moreover, we cannot ignore the gold buying spree undertaken by the central banks. The central banks and the big buyers remain in the market. The day when central banks will say that they hate gold and start offloading from their reserves will be the day that the gold investors and gold dealers in India will need to get worried.

Key Drivers For Gold

 Last week was terrible for gold and gold dealers in India as it witnessed a 6.04% dip. This decline followed the comments released by the Fed. Fed’s hawkish stance spurred a new wave of concerns about tapering. However, prices stabilized at around $1,770 on Monday as the US Dollar dropped slightly from its two-month high. Some investors may take this opportunity to buy the dips, but uncertainties surrounding the Fed’s next interest rate move may continue to weigh on the prices.

The spot price of gold on RiddiSiddhi Bullions Limited reached $1,787.80 (£1,286) per ounce early on Tuesday morning, up 0.3% from where it rested at the close of play on Monday. Gold steadied after posting the biggest weekly loss in 15 months as the Federal Reserve’s hawkish shift damped reflation bets. Gold is attempting a bounce from two-month lows amid falling yields, although a broadly firmer US dollar is likely to limit the rebound.

Gold bears once again became active in the market but couldn’t sustain for long. Following were the key drivers for the yellow metal -

• Inflation - Fed President Bullard said he sees inflation running at 3% this year and 2.5% in 2022, which would meet our new framework where we said we are going to allow inflation to run above the target for some time. From there, we could bring inflation down to 2% over the subsequent horizon. This suggests that conditions may be maturing by the end of 2022 for the Fed to consider tightening, which is much earlier than the market had anticipated.

• Rate Hike - Inflation risks may warrant the US central bank beginning to raise interest rates next year, St. Louis Fed President James Bullard said Friday. His comments came after last week’s Fed meeting where officials signalled monetary policy tightening could start earlier than expected. Chair Jerome Powell further added that the Fed would initiate a discussion about scaling back bond purchases used to support financial markets and the economy during the pandemic. The June FOMC meeting forecasts signalled that two rate hikes are likely by the end of 2023 as economic recovery father’s strength and inflationary pressures intensify. The decision hinted that the Fed would raise interest rates and begin asset tapering earlier than expected.

• Treasury Yield - The benchmark of a 10-year US Treasury Yield fell to its lowest level since Mar 3, 2021. A flattening US Treasury yield curve also seemingly reflects markets attempting to price in the possibility of a 2022 rate hike.

• Dollar - Ultra-low interest rate environment and central banks quantitative easing since the Covid-19 pandemic has been riding gold and a tailwind. Hence, it may be more vulnerable to a pullback when the reverse begins. Although the retreat in the dollar alleviated the sell-off in gold, the near-term momentum may still be tilted to the downside as tapering fears weigh.

It’s clear that the economy is improving rapidly, and the medium-term outlook is very good. But the data and conditions have not progressed enough for the Federal Open Market Committee to shift its monetary policy stance of strong support for the economic recovery. And hence people are using the correction to buy gold from RiddiSiddhi Bullions Limited - the biggest bullion dealers in India, at these price levels; there is value to hold positions in gold, especially for the long run.

Dollar Went Up The Hill And Gold Came Tumbling After

Gold headed towards its biggest decline in five months this week post the FOMC meeting. The FOMC stated that it would speed up its expected pace of policy tightening.

Since the yellow metal is extremely sensitive and influenced by the dollar and interest rate, such a volatile movement was quite obvious. Due to this characteristic, gold suffered a downfall as the dollar and US real yields both reached two-month highs. The central bank kept its interest rates and monthly bond purchases unchanged, as widely expected and concluded the meeting. The Fed on Wednesday signalled it would be considering whether to taper its asset purchase programme meeting by meeting and brought forward projections for the first post-pandemic interest rate hikes into 2023.

Following hawkish comments from Fed officials, the dollar jumped to a two-month high and was on track for its best week in nearly nine months. On the other hand, gold prices fell below $1800 an ounce on Thursday in London, disconcerting the largest bullion dealers in India. The yellow metal witnessed its 7th worst-ever trading day after the US Federal Reserve spooked the bond, equity and commodity markets by signalling an earlier rise in interest rates than previously forecast, leading in turn to expectations that its QE bond-buying will start to 'taper' sooner than later.

This uncertainty (especially in the forex markets) has led to a steep fall in gold and gold coin prices in Mumbai. The Federal Reserve has disrupted the summer torpor that the markets had settled into by signalling on Wednesday that two rate hikes could be in the cards by the end of 2023, a year earlier than expected. Though gold is considered as a hedge against inflation, higher interest rates will reduce its appeal as they translate into a higher opportunity cost of holding the metal.

The haven appeal of gold took a beating earlier this week on the release of the FOMC statement which indicated interest among a majority of committee members to expect rate hikes to begin as soon as 2023, amid a rapid economic recovery underway. This helped the US dollar, as well as bond yields, climb higher, further exerting pressure on the yellow metal, weakening interest in it among investors.

Just when people were about to write off gold, it managed to rise on Friday. At the time of writing, gold is trading at a little above $1,785. There is no doubt that the strengthening of the dollar will be challenging for gold, but looking at the other macro factors, we feel that gold and gold coins in Mumbai should be able to withstand rising yields as long as it is driven by rising inflation expectations. That was, however, not what we saw yesterday, so once again the million-dollar question is whether inflation will be a passing phenomenon or longer-lasting.

Despite the current high-growth, inflationary environment, the proposed Fed rate hikes are not expected to set in for at least another 18 months. So after a little bit more weakness here, gold prices will regroup and push higher.

Global commodity markets look set to undergo a major change in tone over the coming quarter as the rampant gains that have characterized the pandemic era give way to a more muted performance. Looking ahead, continued dollar strength will pose a challenge while gold should be able to withstand rising yields as long as it is driven by rising inflation expectations.

For now, the market including the largest bullion dealers in India trusts the judgement of the Federal Reserve and until data potentially proves them wrong, gold and with that also silver may face another challenging period.