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Saturday 29 March 2014

Is it the right time to buy Gold, Silver & Platinum?


No doubt this had to be the blog for the week. Precious metal prices have been rocketing down for the entire week.

Let’s first focus on the reasons for the price fall:
1.    FED’s QE3 is being unwound at a steady pace. Tracking the improving US economic conditions, FED might even increase the pace of tapering.  QE was responsible to set record highs for gold and the same is the reason for its downfall in 2013.

2.    Ukraine turmoil had given the much necessary support to safe haven buying assets like Gold where the prices were on an upward spiral. As the turmoil continues to unwind itself and most of the news being discounted by the market participants, the support is slowly fading away.

3.    Physical demand is a concern. Bloomberg had reported that Iraq had increased their Gold reserves by a massive 36 tons in March and IMF data showed that Turkey was back increasing their Gold reserves by 9.3 tons in February. Hong Kong Trade Statistics showed a strong month of Chinese Gold imports for February, which were a net of 109.2 tons, which was 30% more than January and 80% more than the previous year. When I had seen these stats, I did feel that the physical demand is holding strong to support the Gold price fall. But frankly, Turkey or Iraq aren’t the main supporters for Gold. Undoubtedly it has been the show of Asian countries and majorly China. Now to track Chinese physical demand, I take support of SGE premiums. When the prices fall, SGE premium is the first one to go up, while that has not been the case lately. SGE premiums have been locked in a negative territory or hardly minutely up despite Gold price fall from $1390 to $1290 in a span of 2 weeks or so. Due to this I feel that once March data is released, it is likely to show a decline in imports relative to February numbers as SGE premiums were in positive range for most of the time in Feb.  With SGE premiums mostly in negative to hardly anything, it would have been less attractive to import metal. Even the But as the economic uncertainties increasingly looming over Chinese banking sector through shadow banking issues, I feel their physical purchases would dampen a bit.

4.    On the domestic front, Gold and Silver prices are dropping faster than its dollar denominated counterparts. Rupee has appreciated considerably when compared to dollar over the past few weeks. This has led to downfall in gold prices. Indian government and RBI had to take tough decisions over the past year and now the results are paying off. With the CAD in control, Indian economy is looking to improve from here on. Due to which investors are regaining their faith in India and investments are gradually increasing.

5.    Silver prices are more or less dragged along with Gold prices. With regards to platinum, the AMCU does not seem to be willing to accept less than double salaries, as it announced it would give Platinum producers one year extra time to adjust the wages and would only then return to work

My take on Gold prices in dollar terms will be in the range of $1180-$1400 i.e. INR 26500 to INR 32500. I feel this is the range that the investor should keep in mind while buying Gold.

My take on Silver prices in dollar terms will be in the range of $18.50-$23.50 i.e. INR 41000 to INR 47000. I feel this is the range that the investor should keep in mind while buying Silver.

Like others I do feel that if overall the economy improves than the downward journey for precious metals will continue. But like others, I feel the below given reasons will always play a crucial role in providing returns to the investors who trust on Gold and other precious metals.

1.    With the upcoming elections in India and CAD in control, I do expect that the new government will surely take some steps to boost the R&D for mining Gold in India as well as provide some relaxations in Gold import policies. If that happens, Asian demand will get a boost from India. But government policies will play a key role as they know the best when it is about deciding the best for Indian economy.

2.    As the prices head lower, I am sure that the physical demand will improve drastically world over and not only China because everyone knows that Gold is the only asset that can be taken into account during any economic turmoil.

3.    Gold will always play an important role in geopolitical conflict situations and economic uncertainties.

4.    As the prices continue to spiral down, mining industry will face hurdles to operate in low margin or no margin environments. If that is taken into consideration, I feel that their operational costs will rise more than the income they generate from mining creating the necessary closure of mines as it will be difficult to stay in business in such conditions.

5.    Silver and Platinum continue their downfall as they are more or less dragged along with gold prices. But as the economy improves their use in industries across the world will continue to rise and in turn increase their demand and prices.

6.    The bubbles created by money printing and market manipulation - not just in the U.S., but the entire world has never been universally unbacked, nor government intervention so widespread. This has not been seen over the years and the stimulus programmes have led to gigantic balance sheets of central of banks of the world under the word: “Economic Development”

Gold has always stood by one and all when it comes to economic uncertainties. But with Central banks and governments trying their best to revive their economies, Gold is loosing its investment appeal to some extent, as investors look for short term benefits.


I feel buying physical Gold, Silver and Platinum should be on cost averaging basis. It has been a successful strategy since the bull year began, though it would be a bit strange for the investors who started investing in the last couple of years.  I am sure Gold or for that matter any precious metal investments would always give best returns if considered as long term investment options and something that you can bank on in financial instabilities.

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

- Previous blog - "GOLD GOES ON A BUMPY RIDE"
http://riddisiddhibullionsltd.blogspot.in/2014/03/gold-goes-on-bumpy-ride.html

Sunday 23 March 2014

GOLD GOES ON A BUMPY RIDE

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






On Monday, gold reached a high of $1391.99, after the Crimean people had voted over the weekend in favour of joining Russian Federation. As Putin passed on the legislation, the west did their move with the first sanctions on Russia, now it is time to wait and see what Putin Replies. 

After shifting focus from Ukraine issues, gold then concentrated on growth figures from China and then the US tapering.

On Wednesday, gold dropped two percent, when Fed Chair Janet Yellen said the central bank will probably end its massive bond-buying program this fall, and could start raising interest rates around six months later.

It was a bumpy week for gold. After surging to near $1,400 earlier this week when Crimean voters agreed to join Russia, gold prices tumbled, picking up speed after the Federal Open Market Committee cut another $10 billion from its monthly bond purchases, and new Federal Reserve Chair Janet Yellen said the Fed may consider hiking interest rates about six months after it ends its quantitative easing program.

The US data so far has been supple. The month of Feb did not show a positive growth (weather conditions and harsh winter to be blamed) but now the economic growth is expected to accelerate.

However, the bank said it could take several more weeks, until April economic data is released, to get confirmation that the economy is  fact picking up. The Fed, as expected, tapered its QE by $10 billion on 19 March. With inflation staying low, rising nominal interest rate will lead to a jump in the real interest rate, which will likely cause the gold prices to trade lower.

Apart from this, precious metals were also partly related to the data released from the Chinese economy. The worries over this have also been rampant. The growth forecasts of China have been downgraded by many. In fact in 2014 the growth is expected to be 7.3 per cent compared to the prior estimate of 7.6 per cent. This means that the demand for gold will be affected which in turn will push gold prices down as China plays a central role in the market and had also become the leading consumer of gold in the world in 2013.

On the domestic front, this week, RBI added 5 domestic private banks to import Gold under the 80/20 rule, which is will assist in facilitating imports and ease premiums to some extent. Their quota will be dependent on how many customers do they have for exports.

India's CAD level is now nearly at 4 years low. The deficit is around$4.5 billion in Oct-Dec period as compared to $5.2 billion in the previous year. This is surely good news for Gold trade in India as it provides a chance for the government to work out strategy to allow Gold imports, but the time frame for that decision to come will take sometime since general elections are just about to begin.

What we need to watch out for in the week-
U.S. - Consumer Spending, new home sales on 25 March, the U.S. Q4 final GDP and core PCE Index
U.K.- Consumer Price Data
Japan- Inflation rates
Germany-a report on business confidence, IFO Business Climate Index
China- March flash manufacturing PMI 
Europe- Developments in Ukraine and Crimea

Since there is a lot to watch out for gold, giving "a" particular prediction for the yellow metal gets difficult at this stage.

But in the long run, gold is expected to be range bound by $1272-$1430 in the international market and Rs.28,000- Rs.31,500 in the domestic market.

On the other hand silver is expected to range between $19.55 and $23.00 and Rs.43,000- Rs.52,000 in the international and domestic markets respectively.


The primary purpose of this blog (Prithviraj Kothari's view on Bullion Markets- MD,RSBL (Riddisiddhi Bullions Ltd.)) is to educate the masses of the current happenings in the Bullion world.
- Previous blog -
"Lots of If's and But's for gold"
http://www.riddisiddhibullionsltd.blogspot.in/2014/03/lots-of-ifs-and-buts-for-gold.html