IS IT THE END OF THE "GOLDEN" ERA?

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

Now when the whole world was writing about precious metals, the history crash, the further predictions etc I thought it was time to sit back and take a look at the whole scenario.

It was too early to comment as all that was happening was panic. Now that markets have stabilised, I would like to take this up for discussion.

To start off, clearly a lot of psychological damage has been done, as well as the practical damage of margin calls on leveraged positions and collateralised gold, so we should not expect a recovery as quick as the decline

The month of April 2013, will always be remembered in the history of gold as it was a record breaking drop in gold and silver prices in a single trading day. Gold saw its biggest two-day fall in 30 years, crashing to $1,322.06 an ounce as panic selling drove the precious metal’s price further downwards

I think that this correction was bound to happen and it happened here. A correction of 20-25 per cent was witnessed after 11 long years.

One of the main reasons was that Investors showed great concern on issues that European Government may have to follow Cyprus in selling part of their holding. This triggered panic selling thus hitting stop loss. Long positions were shifted to short. There was a negative sentiment that caught the market and it sparked sell off in gold.

Some say that the Fed and BOJ asset purchase led to the collapse of gold prices, some say it was ETF liquidation etc

I think finding 'a' particular reason will not explain the phenomena.

The bullion market shifted direction again as both gold and silver resumed their downward trend that started last week. Both precious metals slightly declined on Wednesday along with other commodities such as oil and leading “risk related currencies” such as Euro and Aussie dollar against the USD.

However, on Thursday gold market revived supports from the weak US economic data. Gold extended gains above $1,400 an ounce on signs that jewellers, investors and store of value buyers of gold are taking advantage of the biggest slump in prices in three decades.

Global demand for physical is very clearly seen in rising premiums being seen internationally. The drop in prices ignited a spate of buying in gold coins and bars, sending premiums for gold bars to multi-month highs throughout Asia. Demand intensified overnight as prices rose over $1,400/oz.

Spot gold started weakly, dropping to $1,385.50 in the Asian sessions, but it soon recovered, breaking above the resistance level of $1,400 to a peak of $1,425.25 per ounce – up for the fourth consecutive day and an increase of 5.5 percent on Monday’s close.

Market participants said there’s been a change in attitude in the gold market since the price break that began April 12. On the physical demand side, there’s been an enormous rush to buy, with news reports of strong demand and rising premiums over spot price for gold in many Asian countries. The U.S. Mint also reported very strong sales for gold coins.

Leading economic indicators and the Philadelphia Fed business survey both came in below forecasts. That bolstered ideas the Federal Reserve should not be backing off on its aggressive monetary easing policies any time soon.

The IMF too forecasted lower world economic growth, in the latest signal that major economies of the world continue to splutter or only see moderate growth.

Central banks are divided on whether gold is cheap enough to increase investment, after the two-day plunge through April 15 wiped $560 billion from the value of reserves. Sri Lanka’s central bank governor said falling prices are an opportunity for nations to raise gold reserves and that the island nation will consider buying more. The Bank of Korea said the plunge isn’t a “big concern” because holding the metal is part of a long-term strategy for diversifying currency reserves.

There is a Group of 20 meeting in Washington, D.C. that began on Thursday. The market place will pay close attention to any proclamations regarding foreign exchange rate, financial and/or economic policies coming out of the confab. 

For India, Decline in bullion prices has boosted domestic demand in the country, the world’s largest gold consuming nation.

As of now Gold is expected to move in the range of $1275- $1550 in the next six months in the international markets. Till the prices do not cross $1550, the market seems to be weak for gold.

“The primary purpose of this blog by Prithviraj Kothari - MD, RSBL, is to educate the masses of the current happenings in the Bullion world.”


- Previous blog -
"Record breaking drop for gold and silver in a single day "
http://riddisiddhibullionsltd.blogspot.in/2013/04/record-breaking-drop-for-gold-and.html

RECORD BREAKING DROP FOR GOLD AND SILVER IN A SINGLE DAY

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

Gold and Silver dropped drastically on Friday. Gold was down by 6 percent and silver 8 per cent. Gold was running at a 15 month low at $1484 and dropped by almost 80 dollars in a single trading day.

By Friday evening, gold dropped by Rs. 1050 per 10 gram and was trading at  Rs. 28180  while silver dropped by Rs. 2350 and was trading at 49,350 per kg in the Indian markets.

Even after markets closed, gold in the international markets dropped on Friday mid night. Gold slided around 20 dollars further late in the night.

This downfall effect was seen in the domestic markets on Saturday. Gold dropped by Rs.300 trading at Rs. 27900 and silver dropped by almost Rs. 900 trading at Rs. 48900.

The main reason cited behind was gold sell off by central bank. Some 158,200 taels of gold bullion ( roughly six tonnes) were sold in six auctions held by the State Bank of Vietnam.

There were news that as soon as the international markets opened, Merryl Lynch sold 4 million ounces of gold.

Heavy ETF selling was also seen in the markets.

What triggered panic selling amongst investors was a statement by Draghi. During a press conference he said that while Cyprus doesn’t have to sell its gold, any money that is raised from the sale must go towards covering the losses from the emergency loans to country’s banks.

This resulted in panic selling.

The important  US data released on Friday gave an indication that US wholesale prices aren't rising. Any such signal will prompt investors to sell Gold.

The next target for gold is 1450$ as gold is expected to decline further on the lines of a strengthening US economy.

“The primary purpose of this blog by Prithviraj Kothari - MD, RSBL, is to educate the masses of the current happenings in the Bullion world.”


- Previous blog -
"RSBL launches E coin trading system for the first time in Andhra Pradesh"
http://riddisiddhibullionsltd.blogspot.in/2013/04/rsbl-launches-e-coins-trading-system.html

RSBL LAUNCHES E COINS TRADING SYSTEM FOR THE 1ST TIME IN ANDHRA PRADESH

Hyderabad, 12th April, 2013: Following their grand success of the flagship product ‘RSBL SPOT’, India’s first fully electronic, over the counter (OTC), delivery based bullion trading system with over 2300+ clients across 17 cities in India, RiddiSiddhi Bullions Ltd. (RSBL), India's largest bullion trading company, is glad to announce their ingression of smaller denominated Gold bars in South market via RSBL eCoins. The antiquity and demand of gold in south Indian region has always been impressive. A recent report by Karvy Private Wealth says the four southern states account for over 40% of the nation's overall gold demand.

Even when the demand is promising, Issues like long queues for getting deliveries during peak seasons, institutions and banks often misguiding customers by way of offering discounts on smaller denomination Gold bar’s price etc have been common concerns in Andhra Pradesh. To counteract these issues, RSBL eCoins will provide its retailers/customers with live transparent benchmark prices along with instant trade and rate confirmations. 

‘RSBL eCoins’, a state of the art fully electronic over the counter smaller denomination Gold bars trading system, where buying/selling starts as low as 1gm, is a B2B model where Spot delivery will be given. There are no account opening charges, trading commission and terminal usage charges. The bars are available on the basis of real time pricing, thereby benefiting them to source their supplies at benchmark prices. The bars will be available on the terminal in widest range of denominations: 1, 2, 5, 10, 20 and 50 grams in .999 purity. The highly specialized client relation team will be available to provide technical support, during market hours. The system has the most comprehensive charting package that will help them trade efficiently using technical indicators.

The packaging of the smaller denomination Gold bars is very attractive that comes with a tamper-proof seal that meets international packing standards. Registered Clients can trade on this terminal via electronic devices like PCs, laptops, tablets, mobiles etc.

The official inauguration in Andhra Pradesh was done by Mr. Prithviraj Kothari (Managing Director): Riddisiddhi Bullions Ltd. Commenting on the occasion Mr. Kothari said, “It gives us immense pleasure to announce our entrance in small Gold denomination bars market of South India. Andhra Pradesh is a prosperous place, where people buy a lot of gold and related products like small denomination bars, jewelers etc. Looking at the market we see a huge potential of our eCoins system to flourish as RSBL SPOT system has.”

About RiddiSiddhi Bullions Ltd. (RSBL): Established in the year 1994, it has been amongst the market leaders in providing wholesale and retail level bullion delivery in the spot markets across India. It has made investing in Gold, Silver and Platinum the ‘in’ thing with its easy, reliable and user-friendly systems and products like RSBL SPOT, RSBL eCoins, Bullion++, Bullion India, RSBL Coins, RSBL DIA Jewels and so on. The company’s promoters have a combined experience of over 100 man-years in the industry. RSBL has received SME 1 rating from CRISIL Ltd., which is the highest rating on the SME rating scale. RSBL is a nominated agency for import of Bullion in India and also one of the few Indian companies associated with the London Bullion Market Association (LBMA). It holds a reputation amongst LBMA’s good delivery member international supplier and banks. It has also been certified as a PREMIER TRADING HOUSE status under the EXIM policy of Ministry of Commerce, Govt. of India. , are few of many such accolades. RSBL has carved a niche in the market for being the first ever consolidated bullion trading company in India.


“The primary purpose of this blog by Prithviraj Kothari - MD, RSBL, is to educate the masses of the current happenings in the Bullion world.”


- Previous blog -
"2013: Dubai precious metals conference"
http://riddisiddhibullionsltd.blogspot.in/2013/04/2013-dubai-precious-metals-conference.html

2013: DUBAI PRECIOUS METALS CONFERENCE

Dear all,

I am glad to be a part of: Dubai Precious Metals Conference, 2013. Noteworthy speakers across the world shared their expert opinions.

Everyone in the conference had an opinion that Gold bull run is not going to end soon.

I was in Panel 2: Gold Consumption giants; opportunities linking the UAE with China, India and the US:-

Few excerpts from my speech:
The Indian bullion industry is very robust. What is the percentage of trade between India and UAE? What is the export import scenario?

Mr. Prithviraj Kothari from Riddhisiddhi Bullions Ltd. said that from 1997 to 2012, India imported around 12000 tons at an average price of USD600 an ounce. The import from UAE into India is around 140 tons a year. If UAE banks and traders leave their consignment with Indian nominated agencies and banks, they can improve trade with India. If UAE and Dubai traders and banks can follow the same rule, they can increase the trade to 250 tons.

India consumes around 500 tons of jewellery and the largest exporter of the world. What is the export percentage leads to UAE? How it will be improvised?

Out of total exports from India, 41% of is directed to UAE. It is for local consumption in UAE and re-exported to countries in Middle East and Africa. So DMCC and Dubai is a major partner of Indian export.

To view more, do check: http://dpmc.ae/liveupdates.aspx


“The primary purpose of this blog by Prithviraj Kothari - MD, RSBL, is to educate the masses of the current happenings in the Bullion world.”

- Previous blog -
"Is gold set to enter the first bear market since 2008"
http://riddisiddhibullionsltd.blogspot.in/2013/04/is-gold-set-to-enter-first-bear-market.html

IS GOLD SET TO ENTER THE FIRST BEAR MARKET SINCE 2008?

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

There is a strong debate in the bullion market as to whether gold will enter its first bear market since 2008 as we see the world economy is improving or will it rally?

Some investors see gold plunging to $1400 and some see it shooting to $1800.

But most investors and traders are under the perception that gold is all set to enter the bear market as the US economy shows signs of global recovery.

The main driver behind gold’s weakness this year has been the focus on global growth and that’s meant rotation out of defensive assets like gold.

Bullion slipped this year after 12 straight annual gains as Federal Reserve policy makers debated the pace of stimulus. Gold hit a 10-month low below $1,540 an ounce on Thursday as the dollar strengthened ahead of a statement by European Central Bank chief Mario Draghi, after the bank left rates on hold as expected at its latest policy meeting.

Spot gold fell as low as $1,539.74 an ounce, its lowest since May 30, and stood at $1,546.90  

Gold is down 7.4 percent this year as global equities trade about 2 percent below a more than four-year high. Bullion is set for the biggest weekly drop in seven months and is nearing a bear market even as the Bank of Japan yesterday increased bond purchases and European Central Bank President Mario Draghi warned that he sees risks to Europe’s recovery.

Gold slipped in on mounting confidence that the global economy is strengthening and as investors awaited U.S. jobs data. Silver was near its lowest since July.

The entire market was expecting a good payroll farms data and a low unemployment rate compared to the last report. News of recovery of the US economy pushed gold further.

However, on Friday, when the data was released, it was a completely opposite picture.

The U.S. job-creation engine sputtered in March as employers hired fewer workers than expected and a shrinking labor force helped push the unemployment rate down to the lowest in four years.

Payrolls grew by 88,000, the smallest gain in nine months and less than the most-pessimistic forecast in a Bloomberg survey, after a revised 268,000 February increase, Labour Department data showed . The jobless rate fell to 7.6 percent from 7.7 percent.

The report followed a string of disappointing data this week on activity in the US manufacturing and services sectors and on private-sector hiring, raising concern the recent rally in equities has outrun economic fundamentals.

Considering that the great economic slowdown has still not shifted to the path of recovery, gold and silver once again came in to the spotlight. The negative data report released on Friday, pushed up gold prices further.

As far the Asian markets are considered, India awaits the beginning of the festive season next week and Chinese markets too will open up after a long holiday. Gold prices will further move upwards as we see strong demand for gold in the Asian markets. Weddings will start in India, the world's biggest buyer of gold, and continue till early June. Festivals like Gudi Padwa, Akshaya Tritiya, Baisakhi etc are lined up too. 

Consumers, investors and traders have started entering the market at this dip and I too fell that it is a wise decision to do so.


“The primary purpose of this blog by Prithviraj Kothari - MD, RSBL, is to educate the masses of the current happenings in the Bullion world.”


- Previous blog -
" Is it time to adopt gold or abandon it??"
http://riddisiddhibullionsltd.blogspot.in/2013/03/is-it-time-to-adopt-gold-or-abandon-it.html

IS IT TIME TO ADOPT GOLD OR ABANDON IT??

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

Gold and silver showed mixed sentiments last week and continued to make wave like movements despite many news that did the rounds in the previous week. Mixed movements in the forex market could have resulted in the mixed movements witnessed in the commodities market so far.

Gold and Silver slightly declined on Tuesday, after the news from Cyprus that its parliament passed on the bailout plan. On the other hand, other commodities prices such as oil prices and the stock market indexes such as S&P 500 rose. The shift in market sentiment towards bullish may also have contributed to decline in demand for precious metals and other safe haven investments. 

However, On Wednesday, though gold and silver opened with a negative note, they managed to bounce back by late evening. Causing the climb was a fall in U.S. equities which made the metal more appealing as an investment. In addition, continuing euro zone fears, following developments in Italy, gave gold extra upside impetus. The speculation around Cyprus bailout plan is currently pulling down the Euro and EU stock markets. These speculations have helped rally gold and silver prices. 

The Cyprus bailout is a wake-up call to buy gold. All those who have waited long to buy gold, can now start making decisions. With Europe's unsolvable debt crisis and America's own unemployment problems wherein for the first-time jobless claims rose by 16,000 to 357,000 in the week ended March 23, the highest level in more than a month, it's only a matter of time before we witness another gold rally.

Thanks to the Federal Reserve, central banks around the world are losing trust in the U.S. dollar; which used to be the “safe haven” currency. As more countries print paper money, known as “fiat currency,” the same countries will be reluctant to hold the fiat currencies of other countries in their reserves. Gold bullion is becoming a need for central banks, and I believe central banks will buy more gold bullion, because they have to, as paper money becomes too plentiful. While central banks are buying gold bullion at a rate not seen in 49 years, the price of gold bullion has declined—actions that bring forward the question of price manipulation in the gold market. If gold prices are indeed being suppressed, which is very difficult to prove, the end result will eventually be a major breakout for gold bullion prices on the upside. 

To give you an idea, China has the biggest reserve in the world—worth more than $3.0 trillion. But compared to the gold bullion holdings of other major central banks, China is still far behind. The U.S., Germany, and Italy hold more than 70% of their reserves in gold bullion. Imagine what would happen to gold bullion prices if China even just tried to double its gold reserves. In the backdrop of the gold bullion buying spree, central banks around the world are printing paper money, working to depreciate their currencies to jumpstart exports. (Source: business2community.com)

I feel its matter of time. If things get messier for either, investors can see gold easily hitting $2,000/ounce by the end of the year.

“The primary purpose of this blog by Prithviraj Kothari - MD, RSBL, is to educate the masses of the current happenings in the Bullion world.”


- Previous blog -

"Cyprus gives gold a helping hand"

http://riddisiddhibullionsltd.blogspot.in/2013/03/cyprus-gives-gold-helping-hand.html

CYPRUS GIVES GOLD A HELPING HAND

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

Gold traded near a 3-1/2-week high on Friday, underpinned by safe-haven demand on the fear of a potential financial meltdown in Cyprus, which has put bullion on track for its biggest weekly rise in four months. The clock is ticking for Cyprus to come up with a solution to clinch an international bailout; otherwise it could face the collapse of its financial system and likely exit from the euro zone.  

 The Cyprus crisis has offered gold a helping hand, after investors had been pulling out of the precious metal and piling into stock markets which have rallied this year on a brighter economic outlook. The other reason for this upmove is the fact that FOMC’s decision is still active to keep policy unchanged. 

Gold traded as high as $1,608.63/oz, its first break above the $1,600/oz marker since late February, but pared its gains as a stronger U.S. dollar damped buying. On Thursday, the price of gold rose by 0.39% to $1,613.8; Silver also increased by 1.37% to $29.19

U.S. dollar gold prices continued to hover around $1610 per ounce Friday morning, dipping back below that level after making gains in Asian trading, while stocks and commodities were flat on the day ahead of a vote by Cyprus’s parliament on measures aimed at raising money and securing a bailout. 

European patience with Cyprus is running out after Cypriot lawmakers rejected a plan to tax bank deposits agreed on last weekend by the 17 euro-area finance ministers. The same finance chiefs are now considering a plan to shutter the two biggest banks in Cyprus and freeze the assets of uninsured depositors, four European officials said yesterday. European and Cypriot officials were locked in talks to find a formula to avert the Mediterranean island’s financial collapse, struggling to forge consensus on a bailout package before the European Central Bank cuts funding. Cyprus’s options narrowed on Friday after Russia spurned a bid for a loan and coalition lawmakers in Germany dismissed the Cypriot government’s latest rescue proposals. That left the troika of international creditors to hammer out fresh terms with President Nicos Anastasiades’s coalition focusing on the fate of Cyprus’s ailing banks. The ECB has said it will cut off emergency funding to Cypriot banks at the end of Monday, March 25 unless there is a deal. 

Looking ahead to early next week, Cyprus is going to remain front and centre and euro-zone confidence readings for March will also be significant next week.

Holdings of SPDR Gold Trust, the world’s largest gold ETF, fell 0.902 tons from the previous session to 1,221.26 tons on March 21, the lowest since July 2011. The fund is headed for a twelfth week of outflows.  Adding to the headwind, a string of U.S. data on Thursday, including on the labour market, factory activity and home sales, pointed to a growing momentum in the U.S. economy, diminishing gold’s appeal as an investment vehicle during time of economic and political distress.

On the other hand demand from India, the world's biggest gold consumer, languished before next week's Holi festival, a period considered inauspicious for gold purchases, coinciding with the end of the financial year when traders prefer to keep low inventories.

 I am eyeing key resistance at $1,620 an ounce, a price unseen since Feb. 26. A break above that level could rekindle enthusiasm in trading. All said, Thanks to Cyprus, that gold has started glittering again!

“The primary purpose of this blog by Prithviraj Kothari - MD, RSBL, is to educate the masses of the current happenings in the Bullion world.”

- Previous blog -

"Speaker at Dubai Precious Metals Conference 2013"

http://riddisiddhibullionsltd.blogspot.in/2013/03/glad-to-be-speaker-at-dubai-precious.html

SPEAKER AT DUBAI PRECIOUS METALS CONFERENCE 2013

Dubai Multi Commodities Centre - Government of Dubai, has taken an initiative of organizing a Conference with Foretell Business Solutions: Dubai Precious Metals Conference.

Theme of the conference: Enhancing the Global Precious Metals Supply Chain

I am glad to be a part of this conference. I will be providing insights on the topic: Gold consumption giants; opportunities linking the UAE with China, India and the U.S.
1. How can the UAE strengthen its ties with India?
2. What does it take to serve the Chinese markets?
3. Going west; can Dubai explore the third largest consumption hub?    

Time & date of my Speech: 11:15 am – 12:00 noon, 7th April, 2013.
Venue: Almas Conference Centre, Almas Tower, Jumeirah Lakes Towers, Dubai      
Looking forward to see you there!                                        

For further info. kindly check: http://www.dpmc.ae/index.html

“The primary purpose of this blog by Prithviraj Kothari - MD, RSBL, is to educate the masses of the current happenings in the Bullion world.”

- Previous blog -

"0.1% VAT increase on precious metals"

http://riddisiddhibullionsltd.blogspot.in/2013/03/01-vat-increase-on-precious-metals.html

0.1% VAT INCREASE ON PRECIOUS METALS

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

The Maharashtra government will raise the value added tax on gold, silver, other precious metals, diamonds, and jewellery to 1.1% from 1.0% earlier, State Finance Minister Ajit Pawar said today in his budget for 2013-14 (Apr-Mar). 

The government is planning to implement GST and LBT by the end of this year. If this actually takes place, then I feel there was no such requirement for this step. The hike will directly have an effect on imports. Gold price in Maharashtra will become costlier by INR 6,000 per kg(inclusive of Octroi and additional VAT) when compared to other states. This additional cost will definitely reduce the demand for gold in Mumbai and will have a negative impact on the gem and Jewellery sector. 

Mumbai is the hub for jewelry manufacturers. All machine chain bangles are made in Mumbai  along with hand made jewellery which is made in rest of Maharashtra. This additional VAT will compel manufacturers to shift their base to other states. Hence the rate of unemployment will rise. If this tax was levied all over India, then it wouldn't have made much a difference. But since it is levied only in Maharshtra, gold here will become more expensive than other states and people will prefer to buy from other centers. We have already witnessed a shift of silver business to other states. Levy of this extra VAT will also move gold business away from Maharashtra.  It will create a major impact not only on demand but also the workers especially the small business units. The government has to take some initiative to protect the interests of workers and the entire bullion industry.

“The primary purpose of this blog by Prithviraj Kothari - MD, RSBL, is to educate the masses of the current happenings in the Bullion world.”


- Previous blog -

"Investors being loyal to gold"

http://riddisiddhibullionsltd.blogspot.in/2013/03/investors-being-loyal-to-gold.html

INVESTORS BEING LOYAL TO GOLD

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

Gold was set for the first back to back weekly advance since January, as investors weighed prospects for more stimulus against improving U.S. economic data. Silver, platinum and palladium headed for weekly losses.

Gold and silver moved away from the weekly gain and slightly declined on Wednesday. This decrease corresponded with the drop of leading currencies against the USD such as Euro and Aussie Dollar. The US Retail Sales report published on Tuesday also showed that economic activity in US grew as retail sales rose last month by the highest rate in months. This could be the reason behind the restrained drop in bullion prices.

The US federal budget report too stated that the fiscal deficit so far in 2013 is 15% lower than in 2012. This too is an indication for a downturn in financial risk of the US economy.

This decline in prices moves an investor away from Gold, as they do not consider gold to be a safe haven asset in such situation.

Stronger U.S. economic data like the lower Jobless claims, higher industrial production etc, recently, has lead to the selling pressure for gold. But again, it can be argued gold prices have held up fairly well in the wake of that stronger U.S. data.

Many investors still believe that there is still upward scope in gold and it is more sensible in being loyal to it. Counting quantitative easing measures in key economies and lurking risks in the euro zone are amongst the favorite reason to own gold as gold is always considered a hedge against inflation and economic distress

Looking at the Asian markets, gold demand was quite calm as most people have already made their purchases last month when gold prices dipped considerably.

However, importers now expect a rising demand for gold once the fiscal year ends and the festival of Holi onsets in India. Holi, Gudi Padwa and Akshaya Tritya are considered to be very auspicious days t buy gold and all these festivals are lined up for the month of March and April.

Bullion market participants will be watching the Federal Reserve's policy meeting next week. A hawkish tone would further hurt investors' interest in gold, but Asian buyers would make purchases if prices drop near February's levels.

Till then one needs to find answers to the following

Will the Euro crisis resurface after months of blissful peace?

A positive takeaway on gold is whether the good US economic data will continue to get better after sequester?

Can central banks continue to contain inflation after the rampant money printing programme?

The current situation seems to set gold as a better alternative should all of the above negative economic sentiment resurface. Gold prices have come down considerably and left an upside gap despite all the negative sentiments it has been receiving. 

We are not gold bugs at all just a humble observer who wish to share our views on why holding some precious metals is important.

“The primary purpose of this blog by Prithviraj Kothari - MD, RSBL, is to educate the masses of the current happenings in the Bullion world.”


- Previous blog -

"Is the gold cycle about to turn???"

http://riddisiddhibullionsltd.blogspot.in/2013/03/is-gold-cycle-about-to-turn.html

IS THE GOLD CYCLE ABOUT TO TURN???

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

As the US economy recovers and the investment holdings collapse, the cycle for gold is probably expected to turn. Gold is caught between conflicting signals neighbouring the prospects for continued central bank monetary accommodation. 

Gold traded in a narrow range and hovered around $1,575 an ounce on Wednesday, evoking little interest from investors who switched to riskier assets as confidence in the global economy grew. The exodus of investment from gold-backed exchange-traded funds underscored the sober sentiment for the precious metal and overshadowed physical purchases of the metal in Asia

Private investors added physical gold following the metal's heavy sell off late in February, underpinning a market hit hard by heavy fund liquidation last month.

SPDR Gold Trust, the world's biggest gold ETF, said its holdings dropped on Tuesday in the eleventh session of straight decline to a 16-month low of 1,244.855 tons.

Spot gold edged up 0.2 percent to $1,585, drifting within a $1,564-$1,587 range that it established recently. Spot gold has fallen nearly 6 percent so far this year and is down about 18 percent from a record high of $1,920.30 an ounce hit in September 2011.

The price of gold fell to a seven-month low near $1,550 an ounce on Feb. 21, hit by talk of hedge fund liquidation and fears the Federal Reserve might halt its stimulus earlier than expected. 

Gold prices dipped to two-week low by falling Rs 200 to Rs 29,850 per 10 gm in the domestic market this Friday on stockists selling, triggered by a weak global trend. Silver followed suit and dropped by Rs 360 to Rs 54,960 per kg on reduced off take by industrial units and coin makers.

Traders said stockists selling in tandem with a weak global trend where gold fell before a report that is forecast to show the US labour market improved, damping expectations for further stimulus and boosting the dollar, dampened the sentiment. As expected, there was great improvement in the labour report. Gold lowered On Friday after U.S. employment data showed the economy added many more jobs last month than expected. Employers added 236,000 jobs last month, far above the 160,000 jobs forecast by economists. The unemployment rate fell two-tenths of a percentage point to 7.7%, the lowest level since the end of 2008. The report is a clear indication that the [U.S.] economy is successfully navigating against the headwinds from fiscal graveness.

Attention will now turn to the next meeting of the Federal Reserve's policy board, scheduled for March 19-20, to see if the central bank is any closer to rolling back its easy-money policies in the wake of strengthening economic data. The Fed has said it will consider raising policy interest rates when unemployment falls to hits 6.5%.

Now the question of concern for the precious metals market is that how far the Fed will continue its stimulus plan.

“The primary purpose of this blog by Prithviraj Kothari - MD, RSBL, is to educate the masses of the current happenings in the Bullion world.”

- Previous blog -

"Post budget reactions"

http://riddisiddhibullionsltd.blogspot.in/2013/02/post-budget-commment.html

POST BUDGET REACTIONS

Reactions:

Let me first list down the important highlights of the budget with regards to the Bullion, Gems and jewellery Industry:

1. FM has announced to levy Commodity transaction tax (CTT) of 0.01% on all non-agro commodity trades such as Gold, Silver, non-ferrous metals and crude oil.

2. To prevent harassment to passengers, the government has proposed to increase the limit of duty-free import of jewellery via passenger baggage to INR 50,000 for males and INR 1,00,000 for females. The rule has been amended for Indian passenger who has been residing abroad for over a year or a person who is transferring his residence to India.

Budget 2013 has been neutral

          India's greatest worry is current account deficit and when you need more than $75 bln this year and next year to fund current account deficit, I was expecting that a Duty hike is on the cards. Fortunately that is not the case. The government has neither imposed any restriction nor has it hiked the import duty on gold.

I did expect CTT tax to be introduced. But CTT tax will only add INR 300 per kilo of Gold. Though a nominal amount, but unnecessarily added on a common man’s purchase of Gold.  I feel this should have been introduced only when Options product had been established in the commodity’s exchange along with Tax structure that is currently applicable while trading in Equity markets. This would create a level playing field between the stock investor and the commodity exchange investor

Increasing the Duty free limit on gold for a passenger coming to India (conditions already given), is a positive move undertaken by the government, as it will definitely help in curbing the imports to some extent and reduce the pressure on forex.

I was expecting some announcement on the R&D front, new financial instruments to extract Gold lying in India so as to increase CAD, but these were missing.

On a scale of 1 to 10, I would personally rate this budget as 6.

GOLD AND SILVER SHOW WAVE LIKE MOVEMENTS

Gold looses glitter and silver loses its shine. Precious metals were moving on a see saw all week and then the blood bath of prices had swept the markets. On the exchange gold plummeted to a low of INR 29,100 while silver dropped down to INR 53,100. In the physical market gold and silver were being traded at INR 29,400 and INR 54200 respectively.

Investors, traders and the whole market in general stated different reasons for this crash.

Within a fortnight gold crashed by almost 1000 rupees. But Thursday set a recovery stage for gold. Some weaker U.S. economic data did help to lift gold prices, as the weaker-than-expected Philadelphia Fed business survey worked against notions the Federal Reserve will soon end its major bond-buying program. The other reason that helped gold to bounce back on Thursday from a seven-month intra-day low, was the physical buyers in Asia picked bargains a day after the market was rattled by concerns the U.S. Federal Reserve could scale back its monetary stimulus. This created some positivity in the market.

But before the Fed released its minutes the precious metals markets had already plunged down sharply as rumours swirled that a large commodity hedge fund had been forced to liquidate its holdings, the largest gold-backed exchange-traded fund, New York's SPDR Gold Trust reported its biggest outflow in 18 months on Wednesday, coinciding with the price drop

Gold seemed to know what would come later on Wednesday, as short dated put buying, was followed by a push lower, to trigger a first round of sell stops below the 1600 USD level around midday. Technical inspired selling joined the sell off and as seen from the release of global ETF holding numbers, large long liquidation took place. Around the European lows of 1580 in the afternoon, as so often happens when commodities do a large move, rumours started to make the round that a large commodity fund would be in trouble

A panic selling behaviour was seen in the market.

Spot prices reached a low of $1,554.49 on Wednesday, their weakest since July. They slid 2.6 percent on Wednesday after Federal Reserve minutes suggested the bank may wind down its ultra-loose monetary policy sooner than expected.

It had since reversed course to post a rise of 0.2 percent to $1,565.06 Thursday evening. It fell 2.6 percent on Wednesday, posting the biggest daily drop in a year. 

Quantitative easing tends to support gold, as it keeps interest rates low while stoking fears of inflation. Tumbling prices attracted buying interest in the physical markets overnight in Asia, with analysts and traders reporting high volumes traded on the Shanghai Gold Exchange.

Gold has been caught up in a sandwich between hopes of central bank easing which enhances its inflation-hedge appeal and expected recover of the economy which hollows its safe haven status.

As far as the current outlook is concerned, Gold is expected to move in the range of 28,500. However, one can take a call to buy at this dip as gold is expected to move in the range of 29,500-33,000 rupees in the long run.

PRE-BUDGET VIEWS

1. Government had increased import duty on Gold before the budget. The government's move to hike the customs duty from 4 to 6 percent will have a loud impact on the Bullion sector. The hike sums up to around INR 60,000 (approx) per kilogram of gold. To be clear, with this duty hike a difference of 7 percent between the international and domestic price of the yellow metal is evident. Due to this, the increase in duty on the actual price of gold is being passed on to the retail consumers by the jewelers. This may also lead to rise of illegal channels and malicious activities with respect to importing gold and related products like jewellery etc., in the country. In turn it will lead to an increase in unemployment among the skilled artisans of the country (around 1-2 million families depend on this sector to earn their livelihood) as well the businesses of local jewelers across the country. I expect that this budget will address this issue and a fix duty structure will be levied. The extra revenue generated from the increased duty should be used by the government for creating new hallmarking centers, Research & development in mining sector. 

Hallmarking for jewellery is a great move by the government. It will ensure customer satisfaction by purity assurance. For this, the current need is to increase the hall marking centers at a faster pace so that the implementation is done in no time.

Research & development is the key to the future of Indian bullion industry. India is rich in mines but the R&D is so poor that we are hardly in position to extract much of its abundant resources. To be precise the country produced and refined only 1 - 3 tonnes worth of Gold. That’s less than 1% of the value of metallic mineral production in the country. On the other hand, China boosted its gold refining business after it gave companies a single-window clearance along with fiscal and infrastructure incentives which have put the industry on a fast track and made it a pillar industry in many of the country's gold producing areas. China's gold output increased 11.66 percent from a year earlier to hit a record high of 403.05 tons in 2012, confirmed by China Gold Association (Source: chinadaily.com.cn). This data showed that it is the largest producer for the sixth straight year. I feel that if R&D is carried in an efficient way, production of the metal will increase. This will reduce dependency on imports and in turn help the government to increase the forex reserve. As the metal will be extracted locally, customers will be benefitted pricewise, due to local production.'

I feel FDI is extremely important with regards to Research and Development. R&D is costly but with the help of FDI we can surely work out the way to get the most out of it. FDI will help in strengthening our rupee and in turn reduce the depreciation of our currency.

2. Most importantly, GST implementation is a must. If implemented, it is expected to provide a significant boost to investment and growth of the economy. GST will have a significant impact on almost all aspects of businesses operating in the country, including the supply chain, sourcing and distribution decisions, inventory costs and cash flows, pricing policy, accounting systems and transactions management. A flat 1% across India should be levied by the government, which would replace most indirect taxes currently in place.

3. Commodity exchange have now completed almost 9 years in India. Introduction of Option product for this exchange is must. Those who have the exposure should be given an opportunity. It will be a boon for a bullion trader and jeweler. By using this instrument they can hedge their future position and in a way provide the necessary risk cover. An investor will also be highly benefitted from this instrument. He/she will get a chance to invest in a larger quantity of metal with a lower investment and reap benefits till the expiry date. 

4. I understand that Government is thinking of introducing CTT tax, like the one in the equity market. CTT tax should not be charged on bullion dealers & jewelers, as it will only increase the metal price and in turn increase the price for the customers. It should be charged onto speculators only.

5. Gold Deposit Schemes are offered by banks in which investors deposit gold for a period of certain 3 years earning a fixed rate of interest.  Currently that has been reduced to 6 months. The depository scheme that the banks and MFs are enjoying should also be allowed to corporate, working for bullion industry. It will help to increase the gold reserves and in turn benefit the customers willing to deposit their idle gold. The government should harness the existing reserve of gold in our country rather than turning towards imports and implementing this alarming hike on customs duty. Hiking the duty on imports will in no way, curtail the demand, as the precious metal has always been regarded as one of the best investment options for social security. 

6. Indian households have nearly 25,000 to 30,000 tonnes of Gold. I expect that this budget would show an effective way to gain revenue by exporting it. I would suggest Government of India to introduce schemes like minimum tax scheme wherein an investor is charged minimum tax to convert his/her unaccounted gold into an accounted one. By this the government treasury will also increase and the idle gold can be put to use. The other scheme can be a VDS scheme (voluntary disclosure scheme) by which the Gold /Silver can be brought to the market.

7. I expect an increase in Gold loan scheme period to extend from 180 days to 360 days and LC tenure from 90 to 180 days. As of now Gold Loan is allowed up to 180 days which implies, a jeweler has to rollover his/her position twice in a year and that in turns leads to increase in imports. If the loan period is extended to 360 days, one cycle of loan will be reduced. A direct effect will be reduction in imports.

8. Currently, NRI’s are allowed to bring 1 Kilo of Gold while arriving in India. Earlier this was 10 Kilos. I feel this cap should be raised back to the earlier levels or even more. This too will help in reduction of imports and reduce the Forex pressure.

9. Indian Government does allow export of Gold in form of Jewellery. Export of Gold in form of bars etc should be allowed through banks to avoid money laundering. Moreover the exports should take place at the international market prices only (there is a value addition of 3%+, as per law, which should not levy in this case). Once the exports from India are allowed, there will be a direct effect on Gold price. Over the years, India has purely been an importer. With Exports, I expect the International price would reduce by $100-200 and provide the necessary reduction in India's Current account deficit. On exporting Gold, the refund of Duty should take place in cash or license form.

ANNUAL DEMAND FOR GOLD RISES DESPITE RISING PRICES (2012)- WGC

Today we scan and analyse the main highlight of the World Gold Council 4th Quarter Report 2012 - It states that demand for gold increased in the 4th quarter despite rising prices and economic slowdown.

Let's see WHY and HOW..........

Of all the precious metals, gold is the most popular as an investment. Investors generally buy gold as a hedge or harbor against economic, political, or social fiat currency crises (including investment market declines, burgeoning national debt, currency failure, inflation, war and social unrest). The gold market is subject to speculation as are other markets, especially through the use of futures contracts and derivatives.

Today, like most commodities, the price of gold is driven by supply and demand as well as speculation. However unlike most other commodities, saving and disposal plays a larger role in affecting its price than its consumption.

The World Gold Council released its Gold demand analysis for the 4th quarter of 2012. In 2012 total demand reached an all-time high of $236.4 billion; although on a tonnage basis it declined by 4per cent to 4405.5 tones. Global ETF demand increased by 51% compared to 2011. 

One important trend to be noted worldwide is that this annual demand for gold was coming from central banks and institutional investors. Central Banks added 534.6 tons to their reserves. In the fourth quarter of 2012, gold demand in tonnage terms declined by 4% wherein demand from the above mentioned parties had offset the consumer demand.

Chinese demand was flat year-on-year, reflecting the impact of economic slowdown. However looking at Q4, total demand was up 1% on the previous quarter to 202.5ton. Jewellery demand was 137ton up 1% on Q4 2011 and investment demand was 65.5ton, up 2% on the previous year. These increases may reflect the fact that the economic slowdown in China appears to have been shorter than expected.

During 2012 we saw gold touching its life time high in the Indian market. Adding to this, the government also increased duty on gold first to 4% and then to 6% in January 2013.

Interesting to note was that Indian full year demand was only down by 12% on the previous year, with a strong performance in the last quarter, where 261.9 tons meant an increase of 41% over the last quarter the year before. Demand for jewellery was up 35% year-on-year and the expected duty increase in 2013 was the reason for the strong imports at year end. 

Similarly, during Diwali (the biggest gold buying festival) there was an increase in gold demand in terms of value but simultaneously a drop of almost 30-40 per cent in terms of volume. The main reason behind this was the rising prices of gold. Rising prices meant that though demand for gold will go up in rupee terms but the denominations in which they are purchased will shrink.

For example, in November 2011 the price of gold per 10 grams was around INR 28000 however in November 2012, with the same amount you will be able to buy only 9 grams of gold given that price at that time was INR 31000 per 10gm.

But then India is also enjoying growth, the accompanying urbanization and a rapid increase in the size of the middle class. As this process progresses, dependence on the poorer agricultural sector diminishes and the gold market deepens and widens its demand shape. The Hindu family tradition that favors gold so much does not diminish with this process. Just as life insurance to the developed world stays in place with greater wealth, so gold retains its attractiveness with the Indian community. After all, since the year 2000, who can argue with the performance of gold? We expect that, as prices find support at higher prices, new and bigger demand will appear in this particular gold market

As gold and silver prices rise just like a thermometer measuring global financial uncertainty and instability, more and more investors are entering these markets for the first time, not for profit per se, but for protection against such fears and in an attempt to preserve the wealth they have. These investors come from the entire spectrum of investors across the length and breadth of our world

This is the quintessential reason why demand for gold will rise as gold prices rise.

China and India remain the world’s gold power houses, and by some distance, despite challenging domestic economic conditions. In India, consumer sentiment towards gold remained strong despite measures aimed at curbing demand, reaffirming gold’s role in Indian society. In an underdeveloped financial system in India, gold has an important role to play

Notwithstanding the predicted economic slowdown in China, investment demand was up 24% in Q4 on the previous quarter and jewellery consumption held steady at 137.0t.

Central banks’ move from net sellers of gold, to net buyers that we have seen in recent years, has continued apace.  The official sector purchases across the world are now at their highest level for almost half a century.

Despite the turbulent macroeconomic climate throughout the year, as well as the regional uncertainties affecting India and China, the two largest gold markets, annual demand was 30% higher than the average for the past decade

To give a brief on the past week turmoil:

RSBL Spot Gold price has plummeted from a high of INR 30,800 (Approx.) to INR 30, 100(Approx.) in the past week while Silver has plummeted from a high of INR 59300 to 56950 (approx).