Investors Increasing Their Gold Exposure

When some people just started writing off gold last week stating that it was a bubble, the yellow metal once again proved its opposition wrong.

Though gold consolidated in a narrow range of $1528 to $1493 till Thursday, it did manage to pop up on Friday.

Gold has risen nearly 8% so far this month and about 19% this year, and was set for a fourth straight week of gains.

Gold prices rose by 2% on Friday as investors construed U.S. Federal Reserve Chair Jerome Powell’s speech as leaning toward a dovish monetary policy stance and President Donald Trump’s latest comments exacerbated trade tensions with China.

Powell said the U.S. economy is in a “favourable place,” but gave few clues about interest rate cuts at its next meeting. However, he listed a series of economic and geopolitical risks the Fed is monitoring, noting these were linked to the trade spat.

Spot gold rose 1.9% at $1,526.60 an ounce on Friday, shaking off slight headwinds ahead of the Fed Chair’s speech.

Prices earlier rose to $1,528.79, the highest since Aug. 13, when spot gold had scaled a six-year peak of $1,534.31.

Contradicting to the price rise, data released showed that US jobless claims dropped 12,000 to seasonally adjusted 209000 for the week ended on Aug 17. The IHS Market Flash Purchasing Managers Index came at 49.9 below 50 levels for the first time since Sep 2009. The yellow metal hits an intraday low of $1493.44 and is currently trading around $1495.99.

Markets were eyeing US Fed Chair Powell's speech in Jackson's hole symposium for further direction.

Some early comments revealed that FED is going to be dovish but not outright one and the rate cut won’t be on accelerated mode.

The US 28.10y yield inversions are the real headache for economists whether or not the recession is coming now.

But the real culprit might be the USD-CNY i.e. Yuan on its depreciating fast and sooner it would be bringing more uncertainty and uncertainties are the best time to put money into gold.

Trump tweeted on 21st August that he is hoping a china deal. Fed minutes revealed all expected scenario and two of the members of the Fed actual wanted. 50% rate cut and finally did.25% last month and overall commentary was dovish and more centred around global economic weakness. Trump also ratcheted up the rhetoric on China, ordering U.S. companies to look at ways to close operations in the country, which sent equities tumbling and drove further inflows into safe-haven gold.

This came after China unveiled retaliatory tariffs against about $75 billion worth of U.S. goods.

The fact that Powell said that they (the Fed) will act appropriately to sustain expansion is pretty bullish for gold. The two primary tools they have are quantitative easing (QE) or lower rates - both those tools will cause gold to go higher

Powell’s speech prompted a backlash from Trump on Twitter, asking whether the Fed chair was a greater “enemy” than China’s leader Xi Jinping.

In normal times, investors need lower prices to persuade them to park their money for ten years, but when trouble is brewing, they are prepared to pay more for a secure long-term home for their cash.

Conventional thinking has it that gold, along with other “hard assets” such as real estate, flourishes when an economic boom, with attendant inflation, is driving investors and traders away from conventional securities such as cash, stocks and bonds and towards investments likely to hold their value.

There are three reasons why we believe that now is the right time to think about increasing gold exposure.

The first would be that broad market valuations are high, which would suggest that equity returns over the next decade could be lower than in the past decade. Historically, that has often coincided with strong returns for gold and gold equities.

Secondly, the case for the US dollar over the coming decade is weak. Primarily, this is the function of very large US deficits. Again, when the dollar is weak historically gold has performed well.

Finally, the most important; there are global macro policy risks. These are as likely today as at any point since the Second World War and the cause of that are record-high global debt burdens.

The risk here is that macro policy responses could continue to be unconventional and potentially become more extreme, driving real interest rates very low or even negative.

So as per our Managing Director Prithviraj Kothari's opinion, gold seems to be the best option to park your funds.

Play Cautiously and Take Utmost Care While Trading

Gold prices have risen nearly 16% this year, and by around $ 100 an ounce this week, as investors turned to the precious metal seen as a safe haven amid the bruising US-China trade and currency war.

As the week opened, PBOC of China fixed Yuan at 6.97% against the dollar and Trump and US Fed commented that China is acting as a currency manipulator. As mentioned previously that whatever Trump has done against China in its history is the worst trade war of this decade. There was obvious that pain boomeranged into the US markets and Dow slipped nearly 750 points on Monday- the worst single-day fall of 2019. And big time sufferers are US companies and global economies as they are on the verge of recession.

Gold hit $1485 and that was a major target that I made clear over the time and now this parabolic rise should stop unless China does something nasty to un-nerve.

The dimming global economic outlook, fuelled by heightening trade tensions between the U.S. and China are boosting gold’s appeal as a hedge against financial turmoil.

Gold is likely to show higher volatility and now overall range is expected to be $1500-$1550.

Despite Chinas commitment, the PBOC fixed Yuan at a higher level and fixed USD/CNY at 7.05% on Wednesday. Gold is once again moving to new calendar year highs and it hit $15 higher. Now gold is also behaving like currency when there is a losing streak for USD as the global currency status. These are extraordinary times and no matter how the USD index or the US data comes out, there is next big leg of rally possible on both.

On Thursday, gold showed an intraday volatility of +3%. This kind of fluctuation exhibited in the global markets too. Meanwhile gold hit 5.5 years high of %1522 and also made the single biggest gain of 3 years at 17.25. Moreover, the US-China trade war has been intensifying in a slightly uglier manner and this is adding fuel to the rally in gold prices.

Gold is at a record-breaking high in the domestic markets too. Gold prices on Thursday soared past the Rs 38,000-mark for or the first time rising Rs 550 to hit a fresh high of  Rs 38,470 per 10gm here in the capital.  In Mumbai, agency reports pegged the price of 10gm of standard gold (99.5 purity) at Rs 37,091, while pure gold (99.9 purity) cost Rs 37,240 on Thursday.

Gold remains relevant given the elevated economic and geopolitical risks. Investors will continue to shift their strategic portfolio positions in favor of gold. But Our Managing Director, Prithviraj Kothari advises all the investors to play cautiously and take utmost care while trading in these high volatile patterns.

Be Vigilant to Be Ahead

With even a minor drop in gold prices, many players in the market start doubting gold’s rally and raise questions about the gold bubble. Similar things happened this week.

Initially, gold was pulled down. Mario Draghi positioned up a September easing package but that wasn’t enough for the gold market. It hit $1433 after the initial ECB statement but the lack of action resulted in a drop in gold prices as it was down by $9 to $1416.

The ECB left interest rates unchanged at its meeting on Thursday, but its President Mario Draghi signaled that the bank was prepared to cut rates in September.

Market participants are now looking forward to the U.S. central bank’s monetary policy meeting, where it is expected to trim its interest rate by at least 25 basis points.

President Trump stressed his point to US Fed to do a sharp interest rate cut, rather his recently appointed member Shelton advocated for 50bps cut.

U.S. GDP data, which is due on Friday, is expected to show that U.S. economic growth slowed to 1.8% in the second quarter from 3.1% in the previous quarter.

If markets decide that the Trump administration’s commitment to the strong dollar is under review, investors are likely to sell the US dollar hard, including versus gold.

Furthermore, China added more gold to its foreign reserves in June, for the seventh month in succession. In fact, it is not the only country that’s piling up gold.  In 2018 alone, central banks bought 651 tonnes of gold, up 74 percent compared to 2017 and the highest level since 1971. Over the past decade, central banks have purchased more than 4,300 tonnes of gold, taking their total holdings to around 34,000 tonnes today. The trend has continued in 2019, with net purchases reaching 90 tonnes before the end of the first quarter

Central bank purchases of gold are no guarantee that gold prices will rise but they indicate to the wider investing community the underlying and potentially price-supportive demand for the precious metal. Also, historically, a rise in international tensions has proven somewhat supportive of the gold price, and there is certainly no shortage of that at the moment.

A lot of fuel is expected to be added to keep gold supported. Given the ongoing tensions in the Gulf, the various trade disputes and other geopolitical uncertainties, Prithviraj Kothari expects gold prices to strengthen further.

Gold traders should place stop at $1409.5 (i.e. breaking this will straight-pull it down to $1400) be vigilant. Buy at $1414 for targets $1422-$1425 at most towards advance GDP data. 

Gold Might Perk In the Near Future

We all know that when gold prices rally, all market players join the bull’s bandwagon. Currently, also markets have not left a single stone unturned in proving the fact that gold will touch $2000 an ounce by year-end and cross Rs. 40,000 per 10 gram in the domestic market.

Well, it’s too early and even very difficult to predict even the near term gold price movements because there is so much happening around that stabilizing gold prices seem to be a far reality.

There are three reasons why gold has popped in the last several months -

• Recession risks that have gone up.
• Rates that have been trending lower
• 10-year real yields have gone from 1.2[%] to 25 basis points.

Last week following dovish comments from New York Fed President Williams gold prices traded above U.S. $1450. Less than a day later a spokesman for the New York Fed “clarified” Williams comments saying they were not about immediate policy direction.

If you found last week’s dovish Fed message followed by the backtracking in follow up news articles confusing you are not alone Geopolitical risks from the Persian Gulf could provide some support for the yellow metal, but the next major move will likely be if the Fed is dovish enough for markets. Last Friday, with US Iran tensions escalating, precious metals were seen at new 2019 highs.

Currently gold is at a 6,5year high but it couldn’t sustain. The $1415- $1420 in general is good support to revisit towards $1450-$1460.

After five years of being stuck in a trading range, gold prices have broken out in the last six weeks, igniting a rally to multiyear highs. Prices held near those highs on Monday as investors awaited word from the Federal Reserve about whether the central bank would cut interest rates at its next meeting.

Making the decision less clear cut, tensions between the U.S. and Iran continue to escalate, and with market pricing set at more reasonable levels, there is room for both the ECB and FOMC to deliver a dovish surprise at their upcoming meetings.

The year of 2008 brought 350 basis points of softening into US rates. And then it took a full seven years for the Fed to make another move when the Yellen-led Fed posed her first actual adjustment to the discount rate. Another hike followed in 2016, a little over a month after the US Presidential Election; and then a full seven rate hikes followed in 2017 and 2018. Suffice it to say, this was a stark change-of-pace to a market environment that many had come to rely upon.

Joining these series of events, 31st July at 11.30 pm (IST), The Fed verdict will be stamped and till these 8 days, the markets speculation will also continue.

On Tuesday President Trump stressed his point to US Fed to initiate a sharp interest rate cut. Rather his recently appointed Fed member Shelton advocates for 50bps cut.

So whatever happens on 31st July, gold is still expected to perk as dovish statements will be associated with the event.

In summary, despite the possibility that the current pullback has further to go, our managing director, Prithviraj Kothari feels that the uptrend in gold is likely to re-establish itself with potential towards the next upside target of U.S. $1480/1500.

Gold Is Still Very Reactive to Daily News

The increase in the price of gold is not only limited to US dollar; it is pretty much the same in virtually all major currencies in the world, Recently Indian Government has decided to increase import duty on gold. Our Managing Director- Prithviraj Kothari has advised the market to wait for more stability. There are quite a few reasons why the gold bull market might indeed have returned and that the latest price action is not just bubble.

Gold traders limited the range view before the testimony and were eyeing on $1390-$1392 once again as a final support.

Gold spent most of the week under $1,400 even though China added 10 tonnes to its reserves and Poland reported a large acquisition of 100 tonnes.

Wednesday gold moved decisively up to $1,426 on the back of Federal Reserve chair Jerome Powell's dovish comments at his semi-annual monetary policy testimony but then moderated with US inflation coming in above expectations overnight, although it has held above $1,400.

Spot gold rose 1.5% on Wednesday after Fed Chair Jerome Powell’s dovish remarks, where he confirmed the U.S. economy was still under threat from disappointing factory activity, tame inflation and a simmering trade war, and said the Fed stood ready to “act as appropriate.”

This statement weighed on the dollar. The U.S. currency against major other currencies extended declines for a second session.

All eyes were focussed on Powell over the past week as he presented his key semi annual monetary policy before the congress. What needs to be remembered is that it was a two-day testimony and maybe the last key event before locking the 28th- 29th July verdict. The extent of dovishness depended on change of words that he put on soon after the strong US payrolls.

On the second day of the testimony, Powell almost reassured that he is not changing the stance of June (which was dovish and rate cut prone) as he sees lot of headwind and slowdown especially the trade war-related tensions that are affecting the global growth. Morgan Stanley however thinks that the Fed will cut 0.5% on 25th July.

Gold prices fell on Thursday, erasing gains made early in the day after stronger-than-expected consumer inflation in the United States cast doubts whether the U.S. central bank will cut interest rates as aggressively as expected.

Spot gold dipped 0.85% to $1,406.8 per ounce, dropping nearly $6 after U.S. consumer prices demonstrated a pick-up in underlying inflation, increasing in June by the most in nearly 1-1/2 years.

The core U.S. consumer price index, excluding food and energy, rose 0.3% in June, data showed on Thursday, the largest increase since January 2018. The U.S. Federal Reserve had last month downgraded its inflation projection for the year to 1.5% from the 1.8% projected in March.

Bullion rates were quick to slump following the data, shedding nearly 1% in the latter part of its session, with the dollar erasing some losses.

Gold prices inched higher on Friday as investors shrugged off concerns that stronger-than-expected consumer inflation in the United States could influence the U.S. central bank’s decision on aggressive monetary policy easing.

Spot gold rose 0.3% to $1,407.31 per ounce as during trading sessions, having touched $1,412.20 earlier in the session.

Fed policymakers are scheduled to meet on July 30-31, where investors will look for further cues on monetary policy easing. Nonetheless, gold remains a valuable asset amid rising geopolitical tension, growing macro uncertainty and a maturing economic cycle. The market expects synchronous rate cuts globally, which will make non-yielding gold attractive for investors.

Gold is still very reactive to daily news but it is forming a trading channel of $1,380 to $1,440 and the longer this continues the better - the market needs to consolidate before attempting another leg higher, which we feel is the more likely outcome than it breaking back down.

Market Should Wait for More Stability

Last week, the price of gold spiked above $1,400 per ounce, a level that, signals the beginning of a new bull market for gold. Many factors have been driving gold’s price higher, including recent changes in the U.S. Federal Reserve’s outlook that increased the chances of future rate cuts, the European Central Bank’s comments from earlier this month signaling that further rate cuts may also be a possibility in Europe, falling U.S. Treasury rates and a declining U.S. dollar.

The surge in the price of gold following the Federal Reserve meeting indicated a material change in market behavior as the adjustments to the Summary of Economic Projections (SEP) fuel betted for lower US interest rates.

Some disappointing numbers coming in from the US strengthened gold prices further. The US economy showed fresh worrisome signs on Monday as home sales and consumer confidence sank. Sales fell 7.8% to a five month low in a sign that low rates aren't spurring activity. Consumer confidence also dove to 121.5 from 131.0 as the expectations survey cratered. Those numbers added to the pessimism in the US dollar early and lifted gold for the sixth day.

On a day filled with economic data and Fed speakers, it was St Louis Fed President James Bullard who stole the market's attention with a hint that a rate-cutting cycle isn't coming. Instead of a series of rate cuts, Bullard implied there would be one or two.

Like a typical Bollywood masala movie, there were a lot of twists and turns that continued on Fed chief and other Fed members as FED GUV had appeared just before the Powell’s Speech on 25^th June, and he said that an emergency is not beyond the realm for the Fed.

Later Powell came out and stated that Fed and the independent Body don’t come under political pressure and that one weak data doesn’t necessarily mean a weak economy.
However, comments from St. Louis Fed President James Bullard, a 2019 voting member on the FOMC, suggested the central bank will insulate the US economy with an “insurance cut” as the official insists that a reduction of “50 basis points would be overdone.”

Moreover, Chairman Jerome Powell pointed out that the baseline outlook for the US economy “remains favorable and it seems as though the FOMC will take a more reactionary approach in managing monetary policy as the central bank head pledges to “closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion.”
With that said, details of a US-China trade deal may ultimately lead to a minor adjustment in monetary policy, but Chairman Powell and Co. may have little choice but to re-establish a rate cutting cycle as the Trump administration continues to rely on tariffs and sanctions to push its agenda.

These price movements had a spill effect in the domestic markets too. Local gold prices hit a record ₹35,960 per 10 grams on Tuesday, having jumped more than 10% over the past month. People generally don’t tend to buy gold in such a high volatile markets. Such high jump in prices is welcomed with a dampening demand as investors and consumers would prefer to buy gold in a more stabilized market.

So all in all, the DOW turned weak. The US 10y yields did not gain and still hover 2.00%. This is one indicator that rate cut will be there and dovish view has to be maintained by FED and that’s the reason that gold cannot be bought at $1405-$1425. Our Managing Director Prithviraj Chauhan known as The Bullion King of India has advised markets to wait for more stability and clarity on the global economic front.

BUDGET 2019

International markets didn’t witness much volatility as US market remained closed on 4th July over Independence Day.

Now there are 2 points to be noted-
Firstly, the US DOW is at life’s high at 27000 as the plunging yields are now at 1.94% US 10y. This indicates that the rate cut is bound to happen soon.

Secondly, the key number comes in from US payroll at 6.00pm IST. The Fed meet and broader expectation of 162k vs. last times 75k. Moreover, unemployment rate is expected to be at a decade’s high.

Till then market is expected to be trading in a narrow range.
As far as domestic markets are concerned, all eyes were on the much awaited budget, well named as Modi 2.0 budget.

A clean win this election for our respected PM Modi clearly indicates that the public has hopes with this government and expects it to work for the betterment of our country. Similar to these lines, the common man also had many expectations from this budget with respect to taxation, water managements, farmer loans and many other critical issues.

Even the gem, jewellery and gold industry had expectations that this budget would bring some relief to the sector where duty structure is concerned.

What was need was that the government should give a thought on how gold should be treated and how it should be classified into asset class. Once gold is classified into an asset class then other products like Mutual Funds, Insurance Fund, Pension funds should be allowed to invest into the yellow metal. The dollar rupee fluctuation can be hedged and interest rate can be covered on large scale.

Another need of the hour was to have a more organised gold market. Introduction of a trading platform/exchange to trade gold and all transactions should take place only on this platform. This would bring about transparency in its pricing, set benchmark prices and would benefit the end consumer on a large scale.

Gold has an import duty of 10 per cent, and market players wanted it to be pulled down to 4 percent to boost demand. But the government has proposed to increase the duty to 12.5 percent to mobilise resources. We need to wait and see how markets have accepted this rise in duty and what will be their reaction.

Investors parking funds into Gold

Gold is on a winning streak, shining brighter than before. Investors, households, traders and central banks around the globe are parking cash in it. Gold has rallied its highest in the last six years in the international market. In India, it hit it’s highest ever on June 25. In one month, gold has gained 12% and it appears the Bull Run for the yellow metal will last longer than one thought.

Gold prices have surged to the highest since 2013 as the U.S. and the global economy slow and due to the likelihood of a return to ultra-loose monetary policies. Rising geopolitical tensions in the Middle East and between an aligned Iran, Russia and China versus the U.S. is also leading to safe haven demand. U.S.-Iran relations have deteriorated sharply whereby war has become a very real possibly alas.

Monetary policies - The US Federal Reserve, the country’s central bank, did what many expected last Wednesday, and held interest rates steady while signalling that a rate cut is on its way. Now, meaning no change to the 2.25% to 2.5% range on the federal funds rate. Nine of 10 FOMC members voted to keep rates unchanged. The Fed reportedly dropped its pledge to be “patient” on widely anticipated rate cuts, meaning it could be poised to act. Also, Reuters said, Fed Chair Jerome Powell stopped referring to below-target inflation as “transient”. Reading between the lines gold traders took the message and ran with it, with the precious metal’s price hitting a five-year high.

Economic slowdown - Macroeconomic growth is falling all over the world. Joblessness is not peculiar to India, jobs are falling across the globe and investors are not comfortable opening their purse strings due to the uncertain economic and political environment. Hence, the cash will be parked in the safest haven, the value of which could possibly never come to zero.

US-China trade war - The other reason for gold being on a tear is the risk of the ongoing trade war spiralling into a currency war. If that happens, gold will turn into a bigger monetary asset, it will gain further.4he likelihood of more central banks joining in the race to buy gold will increase with the increase in anxiety about an uncertain future. Gold will also play as the most important asset class as global risks in equity markets rise.

Geopolitical tensions - Concerns arising out of mounting trade war and geopolitical tensions between the US and Iran have added to the dollar weakness and therefore lending an extra shine to gold. On June 25, gold hit its highest in six years, selling at Rs 35,800 per 10 grams, clawing back to 2013 level when it had touched the highest due to government’s desperate measure of an unprecedented import duty hike on the yellow metal

The result was an immediate jump in the gold prices. The rise in gold futures was even more dramatic, with gold for delivery in August rocketing to a fresh high $1,366.60. The last time bullion was priced that high was just over five years ago.

Weak Dollar - gold prices share an inverse relation with the dollar. When the dollar, the world’s most powerful currency loses shine, gold takes over from there. In the month of June, it shined the most, boosted on the back of a weakness in the dollar after the US Federal Reserve signalled it would cut interest rates, going forward, as the US economy was sagging.

Trade, economic and geopolitical uncertainty have seen safe-haven demand return and pushed prices higher.

Apart from this news what made headlines was the G20 summit which ended with a lot of positives and negatives.
Positives- Finally the US and China formally agreed for a re-talk of their completely stopped talks 6 weeks ago.

Negatives - Trump looked desperate for any kind of deal with China, which compelled markets to believe that there is some kind of deterioration of the US economy.  This happened following his face-saving comment on Huawei and later Kudley clarified that there is no big relief for this Chinese company.

His visit to the North Korean border didn’t go down well with the markets.
Some important numbers that market will track in the week are-
• China Manufacturing PMI
• US Manufacturing PMI

The month ended with a lot of glitters for gold as it claimed 6 years high of $1422 and is expected to see big ranges this week if there some kind of news coming in  from
• Economic data
• Trump
• China

Based on the futures markets we can say that if gold crosses 34005 then we can expect a rally of 34250- 34400. If it drops below 34005 then e can expect a further fall between 33875 to 33625.

Markets should wait for more stability

Last week, the price of gold spiked above $1,400 per ounce, a level that, signals the beginning of a new bull market for gold.

Many factors have been driving gold’s price higher, including recent changes in the U.S. Federal Reserve’s outlook that increased the chances of future rate cuts, the European Central Bank’s comments from earlier this month signalling that further rate cuts may also be a possibility in Europe, falling U.S. Treasury rates and a declining U.S. dollar.

The surge in the price of gold following the Federal Reserve meeting indicated a material change in market behaviour as the adjustments to the Summary of Economic Projections (SEP) fuel better for lower US interest rates.

Some disappointing numbers coming in from the US strengthened gold prices further.
The US economy showed fresh worrisome signs on Monday as home sales and consumer confidence sank. Sales fell 7.8% to a five-month low in a sign that low rates aren't spurring activity. Consumer confidence also dove to 121.5 from 131.0 as the expectations survey cratered. Those numbers added to the pessimism in the US dollar early and lifted gold for the sixth day.

On a day filled with economic data and Fed speakers, it was St Louis Fed President James Bullard who stole the market's attention with a hint that a rate-cutting cycle isn't coming. Instead of a series of rate cuts, Bullard implied there would be one or two. 

Like a typical Bollywood masala movie, there were a lot of twists and turns that continued on Fed chief and other Fed members as FED GUV had appeared just before Powell’s Speech on 25th June, and he said that an emergency is not beyond the realm for Fed.
Later Powell came out and stated that Fed and the independent Body don’t come under political pressure and that one weak data doesn’t necessarily mean a weak economy.

However, comments from St. Louis Fed President James Bullard, a 2019 voting member on the FOMC, suggested the central bank will insulate the US economy with an “insurance cut” as the official insists that a reduction of “50 basis points would be overdone.”

Moreover, Chairman Jerome Powell pointed out that the baseline outlook for the US economy “remains favourable and it seems as though the FOMC will take a more reactionary approach in managing monetary policy as the central bank head pledges to “closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion.”

With that said, details of a US-China trade deal may ultimately lead to a minor adjustment in monetary policy, but Chairman Powell and Co. may have little choice but to re-establish a rate cutting cycle as the Trump administration continues to rely on tariffs and sanctions to push its agenda.

These price movements had a spill effect in the domestic markets too. Local gold prices hit a record ₹35,960 per 10 grams on Tuesday, having jumped more than 10% over the past month. People generally don’t tend to buy gold in such high volatile markets. Such high jump in prices is welcomed with a dampening demand as investors and consumers would prefer to buy gold in a more stabilised market.

So all in all, the DOW turned weak. The US 10y yields did not gain and still hover 2.00%. This is one indicator that rate cut will be there and the dovish view has to be maintained by FED and that’s the reason that gold cannot be bought at $1405-$1425.
We would advise markets to wait for more stability and clarity on the global economic front.

Uncertainty High, Gold High

Gold prices have surged this month, passing $1,400 an ounce for the first time since 2013.
Gold is headed for its best week in three years with it set to close near $1,400 per ounce.
Sentiments in markets are bullish and it’s quite simple to state the reasons for the same.

Everything from dovish central banks, technical indicators, negative-yielding bonds and fears of a military strike between the US and Iran are all working in favour of higher bullion prices.

The best performing metal over the past 15 days was gold, up 4.26%. Initially gold traders and analysts were quite neutral on their price outlook for gold. They thought gold will remain more or less stabilised until it hit a five-year high this week and broke above $1,400 per ounce. Bullion got a huge boost after the Federal Reserve kept interested rates unchanged on Wednesday and signalled a readiness to cut rates due to increased economic uncertainties.

Another reason why gold is back in the limelight is that investors are seeking havens amid slowing global growth due to the fallout from the U.S.-China trade dispute. Furthermore, central banks are globally adopting a more dovish tone.

Last week on Wednesday, the Fed left its key rate unchanged and it dropped a reference to being “patient” on borrowing costs and forecast a larger miss of their 2% inflation target this year. The greenback weakened to erase its 2019 gains while the yellow metal strengthened.
In the past week alone the price shot up almost 10 per cent, to $US1408.80 an ounce, with the depreciation of the Australian dollar pushing the price in local currency terms to record levels above $2000 an ounce.
The movement in the past week points to one of the factors driving the price. The 9.8 per cent spike appears to have been a direct response to last week’s US Federal Reserve Board’s meeting, which signalled likely cuts to US official interest rates later this year.

Gold prices rallied to six-year highs last week and continued posting gains on Monday at $1,403 per ounce. In the move to reduce its dependence on the dollar, China has been piling up its reserves, which has added to the precious metal’s resurgence.

The People’s Bank of China has purchased more than 70 tons of gold since December, according to the World Gold Council (WGC). Before that, the Chinese central bank had not reported an increase in gold reserves for more than two years, and the official figures remained unchanged from October 2016 to November 2018.

In fact, it’s not just China. Central banks generally have been diversifying their reserves away from US Treasuries. According to the World Gold Council, they bought 145.5 tonnes of gold in the first quarter of this year, the most since 2013
Central banks continue to show their love for gold. Kazakhstan raised its gold holdings to 11.93 million ounces in May, up from 11.79 million ounces in April. Russia’s climbed from 70.2 million ounces to 70.42 in May. Turkey was also up to 16.03 million ounces in May from 15.99 in April. Additionally, Turkey saw it's gold reserves rise $167 million this week from the previous week to now total $21.7 million worth of reserves, according to central bank data.

President Trump might be starting a currency “war,” in addition to the ongoing trade war. After the European Central Bank (ECB) announced it was prepared to cut interest rates further below zero, Trump published a series of tweets accusing the bank of unfair competition. Trump has spoken of reigning in the dollar, which would likely be positive for the price of gold, as the two have historically had an inverse relationship.

President Trump’s threat to put tariffs on Mexican imports led to the gold price jumping in June. By linking tariffs to non-trade issues, Trump has increased the range of issues that could be complicated with tariffs and hence raised the level of uncertainty. Although the threat of tariffs lasted for only a week, gold held on to its gains.

The world’s two largest economies US and China have been involved in a trade conflict since March 2018. In the latest escalation, the US increased tariffs to 25% on $200 billion worth of Chinese goods. China, in response, introduced duties of 25% on 5,000 US products worth $60 billion.

The US-China trade dispute is ongoing and the US is holding trade talks with Japan and the EU this year. In addition, the UK still has to leave the EU, so economic uncertainty looks likely to remain high, giving investors several reasons to look to gold as a safe haven.

Markets wary of the war

Last week the yellow metal was all green over escalating tensions of the US China trade war. Early in the week, spot gold prices rose 1.1%, registering their best one-day percentage gain in nearly three months after China announced that it would impose retaliatory tariffs on a range of U.S. goods.
After Witnessing its biggest one day percentage loss in a month on Thursday, gold managed to stabilise at around $1286.27 an ounce.

Spot gold fell 0.8% on Thursday, its biggest one-day percentage decline in a month after risk sentiment improved.

Gold welcomed a series of key data, important numbers and crucial news over the week.

• The equities and dollar have boosted due to strong corporate earnings created pressure on gold as equities and dollar strengthened. A firm dollar, placed gold in the red marks. 
• Furthermore, U.S. stock indexes extended gains on upbeat earnings as well as robust economic data that underlined the strength of the domestic economy. Meanwhile, the dollar index hit a two-week high against a basket of currencies.
• The U.S. housing data showed home building increased more than expected in April, while unemployment benefits fell more than expected last week, pointing to sustained labor market strength that should underpin the economy.
• The pullback in risk aversion lifted treasury yields. The rise in yields underpinned the U.S. dollar.


Stronger dollar makes gold more expensive for holders of non-U.S. currency.
Meanwhile, Thursday’s fall in gold prices has worsened the technical picture for the metal. Gold is on its third negative trading day as it seesaws near $1276.50 ahead of the European open on Monday. Bullion traders were happy initially as reports concerning the geopolitical tensions between the US and Iran, coupled with the US-China trade pessimism was released.

Investors couldn’t take much leverage of the gains as markets alter shifted focus on Australia’s surprise election results and optimism surrounding the trade relationship between the US, Canada, and Mexico.

Continuing on last week’s sentiments, , Gold fell to a more than two-week low on Monday as investors preferred the safety of the dollar, with the currency underpinned by robust economic reports out of the United States, even as geopolitical risks and trade tensions persist.

Spot gold was steady at $1,277.86 an ounce during Monday’s trading session, having touched $1,273.22 for its lowest since May 3.
Some believe that the bullish trends have started hovering around gold. People have started diversifying their finance into equities and dollars. They are currently proving to be attractive modes of investments.

A strengthening dollar is creating pressure on gold, the dollar held strong over the following news-
• After strong U.S. housing data and a report pointing to lower unemployment helped the U.S. currency to mark its biggest weekly rise last week since early March.
• Renewed U.S.-China trade fears have also helped the dollar to mimic its trajectory from last year, when it was preferred to gold as a perceived safe-haven asset.
• Investment demand for gold failed to pick up. Even with geopolitical tensions, no safe-haven demand  emerged.

Gold will be an attractive safe-haven asset as rising trade tensions weaken the U.S. economy and drag down the U.S. dollar, according to a recent report from Morgan Stanley. U.S. President Donald Trump has until May 18 to decide whether he will impose a 25% tariff on car imports from the European Union. The deadline comes 90 days after the U.S. Commerce Department said in a study that auto imports pose a threat to American national security.

Apart from the current trade war there are some other factors that attract attention-

• Risk airing from the European Union economy
• Voting in the next crop of MEP’s
• OECD will probably downgrade its global economic outlook.
• The Fed might unnerve investors further by reiterating that hopes for a lifeline from monetary policy are almost certainly misplaced in the near term
• A speech from Chair Powell and minutes from May’s FOMC meeting will probably hammer home officials’ preference for a “wait-and-see” approach
•
Amongst all this, the trade war definitely acts as a wild card. Prices have proven to be responsive to the running commentary on negotiations from media outlets linked to the government in Beijing as well as US President Donald Trump’s Twitter account. Nonetheless any statement released from any side will run volatility waves into the market.

Trade War pushes gold prices high

Gold prices ended last week on a high note as prices rose on Friday over the escalating US China trade war. Gold posted a weekly rise as the United States raised tariffs on Chinese goods and increased fears of a global economic slowdown, with a weaker dollar also offering support to the precious metal.

On May 9, the US government announced that since May 10, 2019, the tariff rate imposed on the $200 billion list of goods imported from China has been increased from 10% to 25%.

The above measures by the United States have led to an escalation of Sino-US economic and trade frictions, contrary to the consensus between China and the United States on resolving trade differences through consultations, jeopardizing the interests of both sides and not meeting the general expectations of the international community.

The United States intensified a tariff war with China on Friday by hiking levies on $200 billion worth of Chinese goods amid talks to rescue a trade deal. U.S. President Donald Trump said on Friday he was in no hurry to sign a trade deal with China.
Uncertainty over the real impact on [the] U.S. economy and Chinese economy was driving gold prices higher.

Gold pieces rallied over the following-

• The levy of increased tariffs by the Trump government has increased the demand for safe haven assets like gold and bonds mainly because equities saw a sharp drop over the trade war. Rise in demand ultimately resulted in a rise in gold prices
• Another spill over effect of the trade war can be seen in the fact that the US Federal Reserved may be forced to cut interest rates which will further result in a rise in the yellow metal.
• Global anxiety has also seen an uptick as U.S. bombers arrived at a U.S. base in Qatar. The bombers have been sent to the Middle East to counter what Washington describes as threats from Iran.
• Bullion was also supported by a weaker dollar which fell after data showed a smaller-than-expected rise in the U.S. consumer price index last month.

Initially markets were expected that a trade deal will be struck between the two biggest economies of the world. However what happened over the weekends was much beyond market expectations.

A full-scale trade war between the US and China began. This war of words is closer than ever after Beijing hit back with retaliatory tariffs on Monday. The Chinese Yuan fell by more than 1%, prompting a selloff in copper, while gold jumped $11 to 1299 and Bitcoin hits $7400. USD fell across the board on reports that some Chinese scholars have mentioned Beijing taking the "nuclear option" -- selling US treasuries. Risk trades have been hit hard to start the week with safe haven assets surging.
After vowing over the weekend to "never surrender to external pressure", Beijing defied President Trump's demands that it not resort to retaliatory tariffs and announced plans to slap new levies on $60 billion in US goods.

• China Says to raise tariffs on  some US goods wef June 1
• China Says to raise tariffs on  $60B of U.S. goods
• China says to raise tariffs on  2493 U.S. goods to 25%
• China may stop purchasing US agricultural products :GLOBAL TIMES
• China may reduce Beoing orders: GLOBAL TIMES
• China additional tariffs do not include U.S. crude oil
• China raises tariff on US LNG to 25% w.e.f. June 1
• China to raise tariffs on import of  U.S. rare Earths to 25%


Here's a breakdown of how China will impose tariffs on 2,493 US goods. The new rates will take effect at the beginning of next month.
• 2,493 items to be subjected to 25% tariffs.
• 1,078 items to be subject to 20% of tariffs
• 974 items subject to 10% of tariffs
• 595 items continue to be levied at 5% tariffs


In further bad news for American farmers, China might stop purchasing agricultural products from the US, reduce its orders for Boeing planes and restrict service trade.
China's announcement of counter tariffs acted as a booster for gold prices and resulted in its rise. There have been talks in the market that the Peoples bank of China may start dumping Treasury’s. But will it also dump US stocks and real estate? Well now we get concrete reasons behind the piling of gold reserves by the biggest gold consumer of the world.

Gold struggles to sustain bullish sentiments

Gold performed well in April. In fact it had a fairly moderate performance given the fact that a lot of macro factors were playing around its prices. US equities, Fed comments, US China trade war, were among the key macro factors that were highly influencing gold prices. Still it managed to stay stable for the month of April.

This week too, gold prices were more or less unchanged. Gold prices were little changed on Thursday ahead of Sino - U.S. trade negotiations, while demand for government bonds, Japanese yen and a key technical resistance limited gains for the safe-haven metal.

In fact after a fairly dismal start to the new month, it began to trade upwards and was some $3 higher by the New York close, and then moved higher on Wednesday.

Once again, gold saw some interesting influencers in the market-

Equities - U.S. equities all fell sharply and gold began to trade upwards. Now it’s not clear, whether gold's rise and the fall in equities were interlinked, but probably the two were connected in some respects.

Demand from Indian Markets - Indian demand and imports were reported by Bloomberg to have risen sharply in April, ahead of the Akshaya Tritiya Festival.  This is seen as an auspicious time to buy gold and silver in the sub-continent and, coupled with lower gold prices over the past few weeks, seems to have boosted demand. As Indians celebrated this Festival on 7th May, we saw jewellers and bullion  traders piling their stocks in the month of April, thus resulting in a rise in demand as reported by Bloomberg.

Demand from China - India used to be the world’s largest gold consumer, but has been comfortably overtaken in this position by China in recent years.  The nation’s central bank has been announcing monthly gold purchases again since December last year and in April it reported it added 14.93 tonnes of gold to its reserves – its highest monthly total since it commenced re-reporting monthly increases and the fifth successive month of reported increases.  This reported figure still puts China in 6th place among national holders of gold, almost 280 tonnes behind Russia in fifth place, but we think China’s true gold reserve figure could be far higher, if one takes into account the nation’s track record of holding substantial amounts of gold in accounts it has, in the past, deemed not re-portable to the IMF.

Trade war - Washington has accused Beijing of backtracking on commitments made during trade negotiations and U.S. President Donald Trump has threatened to hike existing tariffs on Chinese goods on Friday and impose fresh levies soon if there is no deal.
President Trump’s aggressive statement on raising tariffs on some $200 billion of Chinese imports with a deadline on Friday re-ignited trade war fears.

Supply - Demand - New gold supply is pretty flat at the moment given that there are few significant new gold mining projects coming on stream and the price has not been high enough to stimulate any additional scrap sales.  Even if the gold price rises sharply the lead time taken to bring new projects into production is long.  Indeed higher gold prices could conversely lead temporarily to a production downturn as miners open up lower grade sections to prolong mine lives.  And lower grades at unchanged mill throughput's means lower output.

Keeping the current global scenario in mind, it seems that gold will continue to hold its bullish position for which it has been struggling to sustain since a few months. Nonetheless, any news that will be bad for the world will prove to be good for the yellow metal.

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Akshaya Tritiya - Where Gold IS loved by All

Akshaya Tritiya’ a day for GOLD?

India is probably the only country where a religious day is linked to a practice of gold buying. It is the Akshaya Tritiya festival day and we are talking tons of gold here. According to estimates, Indian consumers bought about 20 tonnes of the precious metal on this festive day in 2010. However this was much lower than the buy in 2009 due to soaring prices. India, the world's largest consumer of the yellow metal, bought some 45 tonnes of Gold in 2009. So what makes Akshaya Tritiya a day for GOLD?

For Indians buying gold is a popular activity on Akshaya Tritiya day, as it is the ultimate symbol of wealth and prosperity. This day is important to both Hindus and Jains. According to the traditional panchang Akshaya Tritiya falls on the third day (Tritiya) of the new moon of Vaishakh month (April-May) every year.

Akshaya in Sanskrit means one that ‘never diminishes’ (akshaya) and the day is believed to bring good luck and success. Hindus believe they can get lasting prosperity by buying precious metals on the day. Akshaya Tritiya is traditionally earmarked for beginning new ventures, for investing and purchasing valuables especially gold, jewellery and diamond. It is no surprise Indians buy gold on Akshaya Tritiya as it is considered very auspicious and a safe investment. It is also believed that any meaningful activity started on this day would be fruitful.

We all know that 2011 was the best performing year for gold wherein the yellow metal gave highest returns compared to all assets in it class.

Economically this day is quite productive for marketers as they cash in on the festivity to boost their sales. Marketers indulge in high voltage advertisement campaigns especially the jewellery stores. In fact people in India and overseas book jewellery in advance and take delivery on Akshaya Tritiya day. It’s a day of frenzy buying for all precious metals especially gold. Sales on Akshaya Tritiya day usually increases four to five times compared to normal days. Traditionally the preference for customers is to buy light-weight jewellery, diamond jewellery but today’s economic superpower India sees several buyers preferring diamond jewellery purchases.

India is a secular country and each religion has its own story behind the celebrating Akshaya Tritiya and buying gold on this auspicious occasion.

Let’s have a brief look at the different stories behind each celebration.

According to Hindu astrology, the entire Akshaya Tritiya day is auspicious. So there is no need to look for an auspicious time i.e. no ‘Muhurat’ required on this day. This is the only day in any year when the Sun which is the lord of the planets and Moon which is the lord of creativity are in exaltation meaning at their peak of radiance. Astrologically this is extremely auspicious. That also makes this day one of the most popular dates in Hindu calendar for marriages and partnerships.
Glance through the annals of ancient Indian heritage and one finds that on this Tritiya day of Vaishakh month many significant things of great spiritual importance happened. According to Jain legends, this day is auspicious as people from Ayodhya bought gold and jewellery to offer to their Tirthankara Rshabhdev who was the King of Ayodhya centuries ago. Jains, even today, observe long term fast to commemorate their first Tirthankara Rishabhdev and break their fast on Akshaya Tritiya day with sugar cane juice as Rishabhdeva broke his fast with that juice after 1 year.

According to the ancient Hindu religious texts like the Puranas, this day marked the beginning of the "SatyaYug" or the Golden Age - the first of the four Yugas. It is believe that on this day Lord Krishna gave Draupadi a bowl - Akshaya patara (where food came in abundance) when the Pandavas were in exile. Traditionally this third day in the bright fortnight of Vaishakh is also the day of the sixth incarnation of Lord Vishnu ~ the ‘preserving’ manifestation of God in the Hindu Trinity.

On this day of Akshaya Tritiya, Maharishi Veda Vyas along with Lord Ganesha started writing the great epic Mahabharata. It is also the day the most sacred river of the Hindus, Ganga descended to earth. On this day Sudama visited his childhood buddy Lord Krishna with a hearty gift of a handful of beaten rice (poha). The good returns (prasad) he got in return for his devotion to the Lord is a classical story told in Hindu households. On such a day associated with Lord Krishna the story of Sudama’s offering is mentioned along with Lord Krishna’s affirmation in his Holy Gita ~ “Whoever offers a leaf, a flower, a fruit or even water with devotion, that I accept, offered as it is with a loving heart “.

Thus, many are the reasons for Akshaya Tritiya to be considered a wish fulfilling day. Any worship performed or daan (donation) given on this day is considered extremely good karma. Good karma is considered meritorious and is supposed to bestow beneficial results.

Wold over, gold never seems to lose its sheen and in the domestic market it seems to glitter perpetually. And festivals like Akshaya Triritya keep adding shine to the yellow metal. And there are plenty of instrument apart from jewellery, like coins, bars and exchange traded funds (ETF) that one can invest in.

A very important week for gold

Although the gold market has struggled to attract the attention of general investors, the precious metal might not be as unloved as one would think.
The metal posted its biggest daily percentage gain in seven weeks on Friday after the dollar fell against a basket of currencies, as investors overlooked the strong economic growth in the United States to focus on the pain points.

Gold prices were mostly unchanged on Monday, trading near the more-than one week high touched in the previous session, on bets that the U.S. Federal Reserve might cut interest rate this year after a recent data showed inflationary weakness. Spot gold mildly eased by 0.1 percent to $1,284.31 per ounce at 0626 GMT, having hit its highest since April 16 at $1,288.59 in the previous session.

The main reason for rally in gold prices, were the important data numbers released from the US over the past few days.

• Data showed that U.S. first quarter growth of 3.2 percent was only motivated by the short term stimuli of a dwindling trade deficit and the largest accumulation of unsold merchandise since 2015 which may later weigh on the country’s economic picture.
• Core personal consumption expenditure price index figure, the Fed’s preferred metric of inflation, increased at only a 1.3 percent rate versus 1.8 percent in the prior quarter.
• About a third of economists polled by Reuters on April 25, already expect one real rate cut by 2020
• Lower interest rates in the U.S. put pressure on the dollar and bond yields, making greenback-denominated gold less expensive for holders of other currencies. It also increases the appeal of non-yielding assets such as bullion.


Apart from the data released, we now look forward to the series of events that are lined up. It’s going to be a very busy week ahead with the calendar packed full of market data and events across the globe.
From Monday 29th April to Friday 3rd May a host of data releases await the markets

• USD Employment Cost Index
• USD Chicago Purchasing Manager
• USD Pending Home Sales
• USD Consumer Confidence Index
• USD Pending Home Sales
• EUR ECB Vice President Guindos Speaks in London
• USD ISM Manufacturing
• USD ISM Employment
• USD Continuing Claims
• USD Non Farm Productivity
• EUR Euro Zone Producer Price Index
• EUR Euro-Zone Producer Price Index
• EUR Euro-Zone Consumer Price Index Core
• EUR Euro-Zone Consumer Price Index Estimate


Japan will be closed celebrating ‘Golden Week’ thinning liquidity in Asian hours, leaving markets vulnerable to ‘spike’ moves.

 In such conditions, gold would normally grab a bid but with the US dollar continuing to weigh on the precious metal, a neutral stance looks justified.
But all this doesn’t end here. These were the main data releases/events. A look at the calendar shows that there are a 28 ‘high importance’ data releases and events, all of which could change the risk landscape. A few highlights include, the latest interest rate decisions from the Bank of England and the Federal Reserve, the monthly US Labour report and various GDP and inflation releases across the Euro-Zone. Now we need to see how positively it affects the yellow metal or plays a spoiler instead.

Gold Not Concerned about a rising dollar

Spot gold fell for a second straight month in March even after the Federal Reserve said it would pause on interest rate hikes for the rest of the year, which lead to a surge in equities instead.  The global spot gold prices were trading slightly higher at $1,274.20 an ounce, while silver was trading up at $14.93 an ounce in New York.

Meanwhile on Wednesday, in the domestic market, gold prices were down by Rs. 50 to Rs.3270 per 10 gm in the capital over weak demand from the jewellers.

It’s proving increasingly difficult for Gold bulls to prove their case under present market conditions, thanks to a broadly stronger Dollar, equity markets hanging on to most of their year-to-date gains and cautious optimism over US-China trade talks.
However, dark clouds still linger over the global economy, and data points that signal a turn for the worse for the worldwide context could spark a massive rebound for Gold back towards the $1,300 handle. The ongoing geopolitical crisis, trade wars, dovish Fed comments will add up to the rally in gold prices.

Gold prices are expected to remain higher by 3.2 per cent this year on account of strong demand and an extended pause in interest rate hikes by the US Federal Reserve, World Bank Commodity Outlook for April 2019 said. The yellow metal rates surged in the first quarter by 6.1 per cent after hitting a downward path in September last year. The rise may be attributed to the support offered by robust demand and decline in the real interest rates, the report said.

We can’t ignore the constant buying by central banks. The  share of gold holdings have been increased by the central banks of the emerging markets such as China, India, Russia and Turkey so as to diversify their asset base, the World Bank report said. The investors have increased their net long positions in the gold-backed exchange traded funds, this has lead to an increase in demand and furthermore an increase in the prices of the yellow metal.

The Dollar’s year-to-date climb has kept Gold rooted near its lowest level in 2019, below the psychologically-important $1,280 level, as markets keep an eye on the $1,265 support line.
Still, the longer term outlook is more bullish as central bank purchases should be supportive of prices, with inflows running as high as last year, and a rally of $1,450 an ounce over 12 months awaits.

Gold is here to stay

Gold was set for a decline last week over strong economic growth numbers. Last week, gold fell ahead of first-quarter earnings season as the dollar gained while the precious metal slumped to its lowest level of the month. Gold fell 1.23 percent at the close of Thursday’s trading session to settle at a price of $1.295.15. Nonetheless, analysts maintain that this is only a temporary setback.

Although equities are doing their part to weigh on gold in the near-term, it is just part of the story. Relative and resilient strength in the U.S. dollar is another factor weighing on the precious metal.

Gold was pulled down over strong economic numbers coming in from the Chinese economy-

• China’s economy expanded more than expected in the first quarter of 2019
• While industrial output and retail sales for March were also better than expected.
• Trade and credit data that came out last Friday also exceeded forecasts

Strong numbers coming in from China, imply that a global slowdown has been diminished to quite some extent. Furthermore, according to the minutes published at its last Federal Open Market Committee meeting, the Federal Reserve did leave open the possibility of possible rate hikes this year if the economic data suggests warranting such a move. This, of course, wouldn’t bode well for gold.
The minutes confirmed that if the economic data continue to support the economy, a rate hike could be on the table at the back end of this year. Luckily for the dollar bears, this wasn’t the majority view, at least, not for the time being.

Does this mean the gold will soon lose its sheen?

Well, gold is being supported by ongoing geopolitical issues (U.S.-China trade war and Brexit, among others), concerns around slowing global economic growth and recession fears, and a more dovish U.S. Federal Reserve (no rate hikes in 2019).
Though many investors are shunning gold and shifting focus to equities, there is a set of market analysts that still believe that gold needs to be added in ones portfolio as its gives an insurance cover.

A crisis is expected and it’s soon we realise that one needs to protect his/her finances in times of crisis. And which metal can best prove to be a safe haven asset other than gold?
Gold had faced a similar situation in 2011. Gold was widely ignored since 2011 as an asset class for institutional portfolios. In 2018, bullish sentiment for gold was at a multi year low. Not many people were interested in owning gold.

But then investors realised that they need to own gold in order to protect themselves in times of crisis.

Given the current situation and what is expected in the near future, we can say that gold is here to stay. Even though equities are rising, the momentum won’t sustain in the long run. Fed is not expected to hike rates in 2019. Less hikes and a rate cut would translate to dollar weakness–an open path for strength in gold. Other headwinds include increasing concerns of slowing global economic growth, which could spur a move to safe havens like gold.

And hence this is a very good time for people to get a little bit more defensive and use gold to reserve the wealth they have made in equities.

Gold declined but still a favorite

Since the turn of the century, the gold industry has experienced a roller coaster ride, with prices rising from $255 an ounce in 2001 to highs of $1,906 a decade later, before falling to $1,056 by December 2015. After a gap of almost 4 years, gold is being seen on the green path once again.

Lately, Gold prices have largely been stuck in a range of between $1,217 to $1,330. Though gold started the year on a positive note, last week it did witness a decline in prices.

The sentiments continued to flow in this week too. Gold prices slipped on Monday and they further slipped for a fourth straight session on Tuesday as recent upbeat economic data and signs that Washington and Beijing were making headway in a nearly year-long tariff skirmish boosted risk sentiment.

The main reason for the decline in gold prices were the data numbers coming in from world economies.

Pressures were created on gold as improved economic data came in from China. China reported better-than-expected credit and export figures last week that allayed concerns regarding the pace of economic growth.

• Coming to the U.S., the dollar held firm on Friday after strong U.S. labour and inflation data soothed concerns about the world’s largest economy. As we all know that dollar and gold are inversely related and hence a strengthening dollar pulled gold prices down.
• Furthermore, falling oil prices weighed on commodity-linked currencies such as the Canadian and Australian dollars.
• The number of Americans filing applications for unemployment benefits fell to a 49-1/2-year low last week, pointing to sustained labor market strength that could temper expectations of a sharp slowdown in economic growth.
• U.S. producer prices increased by the most in five months in March, but underlying wholesale inflation was tame.
• U.S. President Donald Trump on Thursday expressed a willingness to hold a third summit with North Korean leader Kim Jong Un but said in talks with South Korean President Moon Jae-in that Washington would leave sanctions in place on Pyongyang.
• European Union countries gave initial clearance on Thursday to start formal trade talks with the United States, EU sources said; a move designed but not guaranteed to smooth strained relations between the world’s two largest economies.
• The six-month delay of Britain’s exit from the European Union avoids the “terrible outcome” of a “no-deal” Brexit that would further pressure a slowing global economy but does nothing to lift uncertainty over the final outcome, the head of the International Monetary Fund said on Thursday
• Moreover, growing optimism over a US-China trade war resolution strengthened the dollar.
• Better economic conditions stoke investors to pivot towards equities that are interest-bearing assets, and shun the non-yielding bullion

But still gold is expected to perform better in the following months. Gold has been witnessing a great start in the current year and many market players believe that it will continue to do so in the near term-  mainly due to
• Concerns over global economy
• Geopolitical issues
• Federal Reserves less aggressive stance on interest rates. The view is that there won’t be any interest rate rises this year, which again will be supportive for the precious metals sector
• Global uncertainties
• Central bank buying
• US China trade war
• De dollarization

Gold is expected to garner safe-haven interest as investors look to protect themselves against an impending recession which might even push gold above $1400 an ounce by the second half of 2019.

Gold vs Stocks

Past 3 to 4 years haven’t been that exciting for gold. In fact gold has surfaced to the current $1300 an ounce, a level that was previously seen 6 years ago. Gold has been trading in a tight range for quite some time.

Gold is an investment that people prefer when the times are uncertain. It’s not a type of investment that can be left to itself. There are times that are just right to enter the market. People buy at dips and try to make the most of every opportunity to buy gold. Physical gold also has a very high liquidity which again increases its appeal as an investment asset.

Today we are in a position where gold is liked more as a hedge tool, an asset that gives you protection against uncertainties. And this characteristic of gold helps in keeping its prices high when there is a global crisis. In fact many are even switching over from equities to gold.

Though the first half of 2018 was dull for gold, it did gain momentum in the second half. 2018 on a weekly chart produced 2 clear trends, and some pretty nice ones at that. We started the year flat, and then had a bear trend from May to October, then a nice rally taking it up. If we’re just holding gold all this time, this really won’t matter, but gold still moves and we can’t call it a complete dog over all this time, even though it’s been one from a longer-term perspective.

This year too, till date gold is up 2% and is expected to rise further given the factors that will influence the yellow metal and create bullish sentiments in the market.

Since the high of February, with each lasting a week or two, gold is producing some pretty well-defined moves, including the current upward one.

But just by seeing the current trends it won’t be possible to exactly predict a future upward movement. We need to consider the past too. We at least need to preface this by mentioning the current bull move with gold, and you won’t really discover that by just looking at its year to date, you have to go back to the beginning of the current move in October. It’s not that we can go back in time and buy some then, but if we’re looking to predict a future up move, we need to at least account for how much we’ve moved up thus far.

The number in play here is $1184 an ounce, the low last October 1. This is also around the time where the stock market started to sink, and when money started to flow out of the stock market more, with some making its way into gold.

We’ve been able to sustain a move of 10% through the subsequent stock market rally, so while the bearish turn with stocks may have given us a push forward, the better performance of gold involved more than this, perhaps our looking to recapture the amount that the market oversold it by earlier in the year.

This is what makes us say that gold is expected to rise further. For 6 years now, gold has been unable to move up much past where it is now. This doesn’t mean that it won’t happen. A weak US economy, Fed policies, US China trade war, Brexit, piling gold reserves, bearish stock markets  are some of the many key influencers that will cause a wave in the market and bring about a rally in gold price.

Fed Continues to be a key driver for gold and dollar

Gold has been going strong since the mark of 2019. As we completed a quarter of the current year, gold continues to show the same sentiments as the second quarter began.  Gold prices rose to a more-than-one-week peak on Monday as the dollar slipped after data showed U.S. wage growth slowed last month, while investors awaited minutes of the U.S. Federal Reserve’s March meeting later this week.
Spot gold gained 0.4 percent to $1,296.87 per ounce by 0746 GMT, after touching its highest since March 29 at $1,297.86 earlier in the week.

Let’s have a look at each factor individually : 

Data - Soft data coming in from the US strengthened the yellow metal. Though the non-farm payrolls data was better than expected, the manufacturing jobs fell which is a bad signal for the sector and doesn’t show a very bright picture of the economic outlook. Marginally better Purchasing Managers’ Index (PMI) reading out of China over the weekend, along with the never-ending optimism about a trade deal, were touted as the reasons. Cyclical outperformed and the yield curve steepened, suggesting that recession fears sparked by the prior week’s inversion were overblown. A slightly better PMI in the US added to this better mood. Contrasting with the stronger soft data were weak retail sales in the US and evidence that inventory continues to build in the channel. Auto and home sales also remain fairly weak. Friday’s labor report was definitely good news and much better than last month. However, some of the leading data from that report, like temporary hiring, continued to soften and bear watching.

DOLLAR - The dollar was down 0.1 percent against key rivals as U.S. Treasury yields extended their decline after the U.S. jobs report signalled a slowdown in wage growth even as employment accelerated from a 17-month low in March. The dollar was also weighed down by softening bond yields. The greenback was 0.3 percent lower at 111.385 yen after briefly popping up to a three-week high of 111.825 on Friday following the U.S. jobs report.

CHINESE GOLD RESERVES - According to the latest Chinese reserve data, the country's gold reserves rose to 60.62 million ounces in March from 60.26 million a month earlier, according to data on its website. This was the fourth consecutive month of gold increases: last month’s inflow was 11.2 tons, following the addition of 9.95 tons in February, 11.8 tons in January and 9.95 tons in December. The recent buying spree resumed after a 25 month hiatus, as China stopped reporting gold purchases in October 2016. This trend broke in December, when Beijing announced it had once again started accumulating gold

RUSSIAN GOLD RESERVES -  The world's isn't sitting on its hands, as governments worldwide added a whopping 651.5 tons of bullion in 2018, the second-highest total on record, according to the World Gold Council, and nobody more so than Russia which quadrupled its reserves within the span of a decade amid President Vladimir Putin’s quest to break the country’s reliance on the U.S. dollar. The one country that has decided it will no longer be part of the USD monetary sphere of influence is Russia, which has been dumping dollars and buying gold at the fastest pace in decades.


Summing up the previous week and why gold rose or dollar fell, we can say - Disappointing European manufacturing data in combination with a more “dovish” Fed led the 10-year treasury yield to fall the most in two years and U.S. investment grade bonds to rise the most in four years. The Federal Reserve left interest rates unchanged, while signalling no rate hikes for the balance of 2019, acknowledging global uncertainty and muted inflation pressures. Markets responded favourably at first, with both bonds and equities rallying on the news, but the markets gave back these gains as the focus turned to what the Fed’s pause might mean about the underlying health of the economy. The Fed will likely continue to be a key driver of equity markets as officials negotiate the balance between rates, inflation and a healthy but slower-growing economy

Dollar dependency reduces. Benefits gold

Why is gold being reconsidered as a mode of investment globally? Why is the dollar dependency reducing? Why are central banks world over piling up their gold reserves?

Well the answer to this looks simple but the reasons behind it are quite complex.

There are so many things happening in the international markets. Gone are the days where just The U.S. economy played an important role in influencing world market. Today there are many other factors that are responsible for the movement of equities, commodities and other markets.

This week too, while the dollar strengthened against the British Pound, gold premium eased in China. Where we saw weakening imports of gold in China on one hand, on the other bullion reserves rose in Russia.

Dollar against the pound - The British Pound was the worst-performing, adding to losses after the UK Parliament was unable to reach a consensus for an alternative Brexit strategy.

Arguably the best-performing major on Thursday was the US Dollar, which climbed alongside rising front-end government bond yields. This is despite a flurry of disappointing domestic economic news flow. US GDP missed expectations, clocking in at 2.2% q/q in the fourth quarter of 2018 against 2.3% anticipated and from 3.4% in Q3.

The U.S. dollar benefited Friday from sterling’s slide after parliament for the third time rejected Prime Minister Theresa May’s proposed deal to pull Britain out of the European Union.

The pound fell as much as half a percent to the day’s low of $1.2976. Sterling’s move led the dollar index higher, last up 0.07 percent to 97.274, helping it recover from an earlier drop on the weaker-than-expected report of U.S. inflation data, which added to the conviction that the country’s economy is losing momentum.

U.S. economic numbers - U.S. consumer spending barely rose in January and income increased modestly in February. The report from the Commerce Department also showed price pressures muted in January, with a measure of overall inflation posting its smallest annual increase in nearly 2-1/2 years. Consumer spending accounts for more than two-thirds of American economic activity.
With growth slower and inflation benign, Friday’s data bolstered the Fed’s case for ending its three-year monetary tightening campaign.

Spot gold was up 0.7 percent at $1,298.80 per ounce by the end of the week, testing resistance at the key $1,300 level.

Bullion was also set to notch up about a 1.2 percent gain for the quarter, helped mainly by a dovish U.S. Federal Reserve and concerns about the global economy.

However, gold was still bound for a second consecutive monthly drop, losing about 1 percent, which would be its biggest decline since August last year. The metal fell by about 1.5 percent on Thursday, the most in more than seven months.

Premium - Gold premiums in China eased in the past week as worries about a slowdown in the world’s top bullion consumer prompted some customers to hold off on purchases, while a price dip buoyed appetite in other Asian hubs.

In China, premiums of about $12-14 an ounce were being charged over global benchmark prices, a slight reduction from last week when they rose to the highest since March 2017 at $14-$16.
The country’s net gold imports in February via main conduit Hong Kong fell 13.6 percent from the previous month.

Gold Reserves - Central bank buying has helped support gold prices in recent years. Bullion has risen 20% since the start of 2016.

Within the span of a decade, Russia quadrupled its bullion reserves and 2018 marked the most ambitious year yet. And the pace is keeping up so far this year. Data from the central bank show that holdings rose by one-million ounces in February, the most since November.

The data shows that Russia is making rapid progress in its effort to reduce its dependency on the US dollar and to diversify away from American assets. Analysts, who have coined the term de-dollarization, speculate about the global economic impacts if more countries adopt a similar philosophy and what it could mean for the dollar’s desirability compared with other assets, such as gold or the Chinese Yuan.

For Russia, experts are starting to question whether it can afford to keep up its intense pace of buying. Some say the country will import more gold to guard against geopolitical shocks and the threat of tougher US sanctions as relations between the two powers continue to deteriorate. Gold buying last year exceeded mine supply for the first time. Still, others argue that Russia’s bullion demand is set to slow.

But it’s not single handed Russia that’s piling its reserves. Given the constant geopolitical unrest, more and more banks are shifting focus to the yellow metal, which leads us to conclude that gold prices are soon to rise further.