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Sunday 19 October 2014

GOLD TEND TO MOVE SIDE-WAYS

by Mr. Prithviraj Kothari, MD, RSBL



As we just thought gold was acting positive and making a comeback, it proves us wrong by the end of Friday.

Gold erased this year’s gains earlier this month on the outlook for higher borrowing costs as the U.S. economy improves. Bullion has since rebounded as the Fed signalled a worldwide economic slowdown may delay interest-rate increases and as equities to commodities slid.

The week was decent enough for gold in the domestic markets, but then internationally showed a sideways performance.

Internationally, gold prices declined after the U.S data reports were in. The better than expected consumer sentiment data lowered gold's safe haven appeal while on the other hand the ongoing concerns over global economic growth and a recovery in global stock markets gave the yellow-metal some support.

Equities and bond yields dropped sharply and the uncertainty over the Fed's hike in interest rates have changed the sentiment for gold from bearish to neutral. Gold showed mixed trends in the week over various economic figures coming in from US

  • U.S retail sales and inflation numbers slumped
  • Core Retail Sales dipped 0.2%, its first decline since April 2013.
  • This indicated to a decline in consumer spending which one of the key indicators of economic growth
  • PPI fell by 0.1%, after a reading of 0.0% a month earlier
  • US Unemployment Claims dropped to 264 thousand, marking a 14 -year low. 
  • Manufacturing numbers were a mix, as Industrial Production gained 1.0%, its best showing since November. 
  • The Philly Fed Manufacturing Index dipped to 20.7 points, but this beat the estimate of 19.9 points.
So it was quite a volatile market for gold and there were several factors responsible for this volatility.


DISAPPOINTING GLOBAL GROWTH AND MIXED US DATA REPORTS-
The global equity drop was induced by the European equities sell-off, which was prompted by the negative August industrial production data from Germany and the market's disappointment with the lack of further monetary announcements by the ECB to fight deflation and a likely recession in Europe. The September U.S. retail sales of -0.3%, an inflation expectation of 1.5% in 2019, and foreign growth slowdown have fuelled growth recovery concerns in the U.S. The September manufacturing output climbed 0.5% compared to -0.5% in August, which can signal that the U.S. recovery is holding up.


GOLD DEMAND
The global equity tumult and the ongoing geopolitical concerns have raised the appetite for gold even though the inflationary pressure has created a negative attitude for gold.
The U.S. SPDR gold trust holdings have risen 0.20% this week after declining for four consecutive weeks. 

Moreover demand for gold from India has risen ahead of the biggest festive season of Diwali and many have made their purchases at dips. India's September gold imports jumped sharply to $3.75 billion ahead of the wedding and festival season, data from the trade ministry showed.

Meanwhile in China, the world's largest consumer for gold, has witnessed a significant drop in demand for gold even though price are running low but demand here is also expected to pick up. Growth in Gold mine output from China is set to slow significantly in coming years in the face of declining ore grades and waning profitability, an analyst at Business Monitor International said on Friday.

Now we need to see what's in basket for gold in the coming week. Gold could trade sideways next week and multiple factors are expected to influence the price of the precious metal.

FED- markets will keep an eye in the Fed Chair's speech this Friday

US- Traders will be tracking news coming in from the equity markets, alongside news about a likely global slowdown, the future pace of US stimulus, US interest rates, the Ebola scare in the US , the U.S leading indicators index , the U.S September new home sales, the U.S September CPI, September US leading indicators index and geopolitical tensions the world over.

CHINA-Next week, we will monitor the September China industrial production data, the Q3 China real GDP growth.






The primary purpose of this article by Mr. Prithviraj Kothari is to educate the masses of the current happenings in the Bullion world.

- Previous blog -
"Is Gold Making A  Comeback?"
http://riddisiddhibullionsltd.blogspot.in/2014/10/is-gold-making-comeback.html

Sunday 12 October 2014

IS GOLD MAKING A COMEBACK?


by Mr. Prithviraj Kothari, MD, RSBL



Gold has fallen nearly 40% from its 2011 high above $1900 to reach below $1200 at the start of the week. A resurgent dollar, coupled with positive U.S. economic data, had been driving gold's declines over the past few weeks. Investors tend to withdraw from non-interest-bearing assets to seek higher yields elsewhere when the dollar gains.

But gold picked momentum in the past seven days. We finally saw gold catching a bid on global risk aversion. It has rebounded nearly 4 percent from the 15-month low of $1,183.46 it hit on Monday on heavy selling pressure that followed a better-than-expected U.S. payrolls report last week.

There were various factors responsible for the rise in prices-
  • The end of QE
  • Geopolitical uncertainty
  • Falling global growth estimates
All these factors once again made gold a good prospect as a safe haven asset.

On the second day of the week, gold was up after the  International Monetary Fund cut its global economic growth forecasts and weak German industrial data stoked further concerns. Following this the dollar fell which further gave a push to gold prices.

Gold rose consecutively for four days marking its longest winning gain in seven months. In fact traders witnessed heavy short covering for gold rise over the Fed minutes which created uncertainty over the timing of a Fed interest rate rise.


*source- www.kitco.com

The minutes of their last policy meeting showed that they are still struggling to come to grips with the dual threats of a stronger dollar and a global slowdown and hence they were further uncertain about linking the interest rate rise to U.S economic progress. Equities further weakened on concerns over global growth mainly in China and Europe.

Gold prices bounced off 2014 lows this week after testing support around the $1,180 area, a price gold hadn’t seen since June and December 2013. Analysts said short covering, which is the buying back of previously sold positions, and the return of Chinese traders from their Golden Week holiday helped return the yellow metal above $1,200.

However, In India it's a different scenario this year. Last year the volumes were much high as people rushed to buy gold, when prices crashed. This year prices have been consistently low. Moreover, disappointing monsoons and continued import restrictions have also affected gold demand in India.

Now the market awaits movement in equities, dollar and crude oil which could have a major role in influencing gold prices. Also, gold-market watchers will keep an eye on the Indian market to gauge metal demand ahead of the Diwali holiday later this month. Apart from this, the market player will also watch the economic data that will be flowing in- China releases a slew of economic reports, while The U.S. will see inflation data with the producer price index expected to show falls in energy and food prices, reflecting the recent drop in commodity prices.

If the US equities market continue to drop then it could create a favourable position for gold but if investors flush in more money into equities keeping the "buy on dips" funda in mind then we could see the dollar rally and gold would once again be pulled back from its gains.

Current view: BUY ON DIPS

Trade Range:

METAL INTERNATIONAL
price range

DOMESTIC
price range
GOLD  $1207 - $1242
an ounce 
Rs.26,500 - Rs.28,000
per 10 gm
SILVER $16.85 - $17.85
an ounce
Rs.38,000 - Rs.40,000
per kg


The primary purpose of this article by Mr. Prithviraj Kothari is to educate the masses of the current happenings in the Bullion world.

- Previous blog - "Gold's Future at Stake!"
http://riddisiddhibullionsltd.blogspot.in/2014/10/golds-future-at-stake.html