AN UPBEAT DOLLAR BEATS UP GOLD

- By Mr. Prithviraj Kothari, MD, RSBL

 

As the outlook for the U.S dollar remained upbeat, we saw a bearish sentiment in the market for gold. Many investors expect that an interest rate hike by the U.S Federal Reserve will come sometime in 2015 was responsible for this sentiment. 

The Fed had stated that before it would tighten its policy, after it sees acceleration in wage growth. But at the same time the Fed had also made it clear in the January minutes in recent weeks that rate hikes could occur even if inflation is floundering. For now, as the Fed doesn’t consider the drop in inflation anything more than transitory, it’s unlikely that the wage figures ruffle too many feathers, at least for the U.S. Dollar.

Apart from the interest rate hike, there is also a great deal of uncertainty about the geopolitical and macroeconomic situation and gold continues to react to development in this regards.
The strong greenback has pushed gold prices below the key psychological level of $1,200 an ounce and has pushed the euro to a 12-year low

Both the euro and gold prices remain under significant pressure from the U.S. dollar.
The U.S. dollar has strengthened, particularly against the euro and that is negative for gold.

Though gold ended down for the week, it did show modest gains on Thursday afternoon although in euro terms it struck a near-one-month high following a speech from ECB president Mario Draghi on the bank’s QE programme.

An optimistic Draghi today outlined the ECB’s bond-purchasing plan that will begin on March 9. But he set a floor for bond purchases at the ECB’s deposit rate of -0.2 percent, following questions regarding to the extent to which the central bank will dabble with negative-yielding bonds.

As the week ended, gold prices fell to a two month low on Friday following a strong U.S non-farm payrolls report. Details are as following-

• US total non-farm payroll employment increased by 295,000 in February and the unemployment rate edged down to 5.5 percent from 5.7 percent, which was significantly better than the forecast for the addition of 240,000 jobs and a 5.6-percent unemployment rate.
• Labor reports over the next several months will take on added significance because the Federal Reserve is on the verge of raising interest rates.

This reading put added pressure on the Federal Reserve to raise interest rates in the near term.


By Friday afternoon prices had hit a session low of $1,162.90 an ounce and settled only marginally higher at $1,164.30, down 2.6% for the day. The gold ended the week at its lowest point since Dec. 1, shedding 4% since Monday.
Many cautious investors displayed a large scale pullout, looking for refuge in investment opportunities like stock, assuming bullish prospects for equity markets would continue in emerging markets like India.

Currently investment in equities looks more fruitful. Many investors are seeking shelter under this avenue as it is expected to give better returns than bullion; hence many investors sold their holding in gold to divert funds into equities in markets like India.
The jobs report definitely added fuel to fire for those who are expecting higher interest rates. Gold’s fall today shows that there is faith in the interest rate underpinning the dollar right now.

Strengthening dollar which is trading at its 11 year peak because of optimism in the US economy will be a strong factor for gold prices to come down in this month.

Although most of the market focus will revolve around the U.S. dollar and interest expectations, the two economic reports that will garner investors’ attention are-

•  February retail sales
•  Producer inflation data

The question now on everyone’s mind is just how low gold prices will go next week, in what is a quiet week for U.S. economic data. Most analysts expect that markets will spend most of next week preparing for the Federal Reserve monetary policy meeting on March 18.
Any hike by the Fed, which has kept rates near zero since 2008 to stimulate the U.S. economy, could hurt demand for bullion, a non-interest-bearing asset. If there is no physical demand then the market could be vulnerable.

The current strategy that market players should follow is “BUY ON DIPS”. 

Following trade range could possibly give an idea for the same.

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1130-$1200 an ounce	Rs.25,700- Rs.27,000 per 10gm
SILVER	$15.40-$ 17.00 an ounce	Rs.35,000- Rs.38,000 per kg

“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 -
"Overall A Decent Budget For Gems & Jewellery Industry"

http://riddisiddhibullionsltd.blogspot.in/2015/02/overall-decent-budget-for-gems.html

WISHING EVERYONE A HAPPY, COLOURFUL AND SAFE HOLI

PRE-BUDGET VIEWS AND SUGGESTIONS

    FDI in Indian Bullion Industry is the key to Growth 

                                                                        by Mr. Prithviraj Kothari, MD – RiddiSiddhi Bullions Ltd.
 

The most discussed topic of this month is the "Budget" and how it will affect the commodities  business. Lately, I have been asked about my views and expectations from this year budget. I would like to put forward the following points-

Expectations are high for a massively reformist Union Budget that would give the somnolent economy the jolt it badly needs.

There are quite a lot of aspects that need immediate consideration for action as the bullion industry has been suffering a lot due to the current norms and practices.

Research & development is the key to the future of Indian bullion industry. Data by China Gold Association (CGA) shows China produced 451.8 tons of gold in 2014, up 5.52% year on year. It has been the eighth consecutive year for China to become the biggest gold producer globally.

Primarily, there is a need for R&D to be carried out in an efficient way in the country, which will increase production of the metal. 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.
R&D is costly which requires huge investment, but with the help of FDI we can surely work out the way to get the most out of it. In turn, FDI would help in strengthening our rupee and in turn reduce the depreciation of our currency.
We expect the following to be executed immediately and in a short period of time.

a.    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.
We expect a flat 1% GST across India to be levied by the government, which would replace most indirect taxes currently in place. 

b.    Introduction of Option product for Commodity 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 highly benefit through 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.

Commodity Transaction Tax (CTT) reduces market participation and lowers liquidity.

c.    Allow Depository schemes for bullion industry corporate: 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 instead harness the existing reserve of gold in our country rather than turning towards imports and implementing alarming hike on custom duty. Hike in 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.

d.    Introduce schemes to convert unaccounted gold to accounted one: 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.

e.    Extend Gold Loan scheme period and LC Tenure: We 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.

f.    NRI’s to be allowed to bring more Gold in India: Currently NRI’s are allowed 1 Kilo of Gold while arriving in India. Earlier this was 10 Kilos. We feel this cap should be raised back to the earlier levels or even more which would help in import reduction and lower the Forex pressure.


“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 -

"Gold Perplexed"

http://riddisiddhibullionsltd.blogspot.in/2015/02/gold-perplxed.html

GOLD PERPLEXED

 - By Mr. Prithviraj Kothari,MD,RSBL

Gold this week was giving confused or rather mixed behavioral patterns as it was being pulled between the bullish and bearish forces.

On Thursday, gold ended at $1,220.70 an ounce, up $1.10 or 0.1 percent, on a weak dollar and some disappointing economic data from the U.S. with retail sales dropping more than expected in January and first-time unemployment benefit claims rising more than anticipated last week.
Though gold was up on Friday, followed by weak US economic data, for the week gold was down 0.6%.

Let’s analyze the bullish and bearish factors that were responsible for this wavelike movement in gold-

BULLISH

Weak US Economic data-  Following Thursday’s reaction, gold was up for a second straight session in Friday.
Gold displayed the behavior post the release of some key reports from US. In some soft economic news from the U.S., a University of Michigan report on Friday showed an unexpected, sharp pullback on its U.S. consumer sentiment index in February, after having reported the index at an eleven-year high in the previous month.

Meanwhile, the Labor Department released a report on Friday showing another steep drop in U.S. import prices in the month of January, attributed largely to falling energy prices.
Additionally, the Labor Department said export prices slumped by 2.0 percent in January following a revised 1.0 percent decrease in December. Export prices had been expected to fall by 0.8 percent compared to the 1.2 percent decline that had been reported for the previous month.

Greece issues- Equity markets were hit by the uncertainty prevailing over Greece’s debt negotiations with its European lenders and its future in the euro zone. This has benefited the bullion markets that were up on Friday as safe haven demand for gold increased.

Greece agreed on Thursday to talk to its creditors about the way out of its international bailout in a political climb-down that could prevent its new leftist-led government running out of money as early as next month.

Increasing gold purchases by official bodies worldwide- Central banks were net buyers of gold for the fifth straight year in 2014, with purchases nearing a 50-year high, in the face of growing geopolitical risk. According to a report released Thursday by the World Gold Council in London, central banks' net purchases of gold came to 477 tons in 2014, up 17% on the year and the second-highest figure ( after 2012) since data were first kept 50 years ago.
.
Other official bodies worldwide namely Russia's Central Bank (purchases exceeding sales by 173 tons ), Iraq’s Central Bank (added 48 tons to its stocks)  also hoarded gold. Official bodies have been net buyers of gold since 2010, when the euro crisis struck. Increasing volatility in the foreign exchange market is stimulating worldwide demand for gold.

India's consumer demand slid 14% to 842.7 tons, as the country raised import duties on gold in hopes of closing its growing current account deficit. In spite of the decline, India returned to the top spot as the world's biggest consumer as the former leader China’s demand for gold slide 38%.

USD-  Gold was firmly supported this week by a frail US dollar. The dollar trended lower against some select currencies after some soft economic data from the U.S. A weakening dollar supported gold by making the commodity priced in the greenback cheaper for holders of other currencies.

French Economic Report- The statistical office Insee reported on Friday that the French economic growth slowed as expected in the 4th quarter. France's gross domestic product rose 0.1 percent sequentially, in line with forecast, but slower than third quarter's 0.3 percent expansion



BEARISH

US interest Rate Hike-  Gold held above a five-week low on Friday amid a weaker dollar and uncertainty over debt-laden Greece, but the safe-haven metal was set to close down for a third straight week on expectations of higher U.S. interest rates.

Euro zone Data- Apart from the Fed’s anticipated interest rate hike, upbeat economic news from the Eurozone has weighed on gold prices all week. Helped by growth in Germany, the combined gross domestic product of the Eurozone was up 0.3% sequentially in the fourth quarter.

Germany’s Economic Data- Germany's economic growth accelerated more-than-expected on domestic spending and exports in the fourth quarter, while investment dragged expansion in France.
German gross domestic product advanced 0.7 percent sequentially- this was the fastest growth in three quarters and also exceeded a 0.3 percent rise forecast by economists.

 SPDR Gold trust- Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, edged down to 771.51 tons on Friday, from its previous close of 773.31 tons.


 Summing it up, markets worldwide await the interest rate hike by the Federal Reserve which is expected to happen sometime this year. Reacting to this, the outlook for dollar remains upbeat despite the recent losses.

Any hike by the Fed, which has kept rates near zero since 2008 to stimulate the U.S. economy, could hurt demand for bullion, a non-interest-bearing asset.

TRADE RANGE-

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1211- 1245 an ounce	Rs.26,500- Rs.28,000 per 10gm
SILVER	$16.55- $18.00 an ounce	Rs.37,000- Rs.40,000 per kg

“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 -
"Trade Range For Gold Remains Tight"

http://riddisiddhibullionsltd.blogspot.in/2015/02/trade-range-for-gold-remains-tight.html

TRADE RANGE FOR GOLD REMAINS TIGHT

- By Mr. Prithviraj Kothari, MD, RSBL

The sentiments are so strong for the gold market that people get overly excited about the top as well as the bottom of the market. At times gold seems to be behaving like a common man who is fleeced by the minutest to the most extreme global scenarios.

This week too gold was dancing to the tunes of the US dollar, The US Jobs Data, Fed Interest rate hike, ECB’s actions on Greece, crude oil prices. So it’s basically a vicious circle for gold.

Ups and mostly downs were being strongly witnessed by gold. For the month of January Gold was up 8.4 per cent, its biggest monthly rise in three years, helped by a sharp slowdown in US fourth-quarter economic growth. US gold for April delivery edged up 0.2 per cent to US$1,265.20 an ounce.

But the first week of February was disappointing for gold. Gold steadied on Friday ahead of crucial US employment data, but was set to post its biggest weekly loss in almost two months after steep gains at the start of the year.

The gold market appears to be in a tug of war with uncertainty: in Europe, with Greece boosting safe-haven demand on one side, and a strong U.S. dollar on the other side. The metal dropped 1.5 percent this week the most since December.

Let’s analyze the key influential factors for gold

US Employment Data- The employment data released on Friday was much above the expectation levels and this changed the market’s view on when the U.S. Federal Reserve will announce a rate hike, and has hurt the metals complex since then.

Total nonfarm payroll employment rose by 257,000 in January, and the unemployment rate was little changed at 5.7 percent, from 5.36 percent the U.S. Bureau of Labor Statistics report stated.  Job gains occurred in retail trade, construction, health care, financial activities, and manufacturing. The change in total nonfarm payroll employment for November was revised from +353,000 to +423,000, and the change for December was revised from +252,000 to +329,000. With these revisions, employment gains in November and December were 147,000 higher than previously reported.

This further raises the expectations for the Federal Reserve to hike interest rates by mid-year, denting the appeal of non-interest yielding assets such as gold.

Strength in the U.S. economy is backing the case for the Federal Reserve to raise interest rates, curbing gold’s appeal because the metal generally gives investors returns only through price gains.

Greece- Meanwhile, investors remained wary of developments in Greece, after the European Central Bank said it would no longer accept Greek bonds as collateral for lending, shifting the burden on to Greece’s central bank to provide additional liquidity for its lenders and increasing pressure on Athens.

Greece’s government is seeking debt relief on its current €240 billion bailout, which has fuelled fears over a clash with its creditors that could bring about its eventual exit from the euro zone.

This uncertainty over Greece has provided the much needed support to gold prices.


ECB's action on Greece- The market kept an eye over the ECB’s actions on Greece after the newly elected Greek Prime Minister wanted to end the austerity programme by the Troika. The ECB restricted Greece from tapping the ECB’s direct liquidity lines, forcing the Greek banks to borrow at a higher rate from the Bank of Greece under the Emergency Liquidity Assistance.


Uncertainty about the ECB’s funding for Greece and the country’s exit from the Euro has led to a stronger demand for gold. Despite the weak Euro, which has fallen five percent against the Dollar this year, the gold price has risen 6.64% year-to-date and has climbed as high as ten percent this year. While some profit taking is natural after the big gold price move, the continuous liquidity boost from China and Europe and the volatility in the currencies are likely to support gold prices in the medium-term.


The metal is still up 6.8 percent this year amid concern about austerity measures in Greece and as central banks in Europe and Asia announced more stimuli to bolster economic growth. Investors have added to bullion holdings in exchange - traded funds for the past month, bringing assets to the highest level since October.

Apart from global facilitation., another element that will be crucial for the gold market are the growing problems in Europe as the European Union and Greece have been unable to develop a renegotiation agreement.

Following factors shall be monitored over the weeks to come-

• G20 meeting on 9 February,
• China’s January inflation data on 10 February
• U.K. December manufacturing output on 10 February,
• The Eurozone December industrial production on 12 February
•  The U.S. January retail sales on 12 February
• The Eurozone Q4 preliminary GDP on 13 February.

TRADE RANGE FOR GOLD:

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1180- $1270 an ounce	Rs. 26,000- Rs. 28,000 per 10 gm
SILVER	$16.15- $18.00 an ounce	Rs. 36,000- Rs. 40,000 per kg

“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 -
"Too Many Surprises For Gold In The Week To Come"
http://riddisiddhibullionsltd.blogspot.in/2015/01/too-many-surprises-for-gold-in-week-to.html

TOO MANY SURPRISES FOR GOLD IN THE WEEK TO COME

                                                                                                            - By Mr. Prithviraj Kothari, MD, RSBL

Finally, there are other drivers apart from deflation and dollar that have been influencing gold prices this week. After a long time gold has found supporting drivers such as negative interest rate and market turmoil and uncertainty.

Finally gold managed to reach a high of $1300 on Thursday and then lost a little pace and settled at $1293 on Friday.

It’s just been the third week of 2015 and gold is already 9 per cent up and because of its strong momentum, gold prices do have room to move higher and a consolidation period is expected at some time soon.


Following influential factors played a significant role for precious metals this week-

ECB- On Thursday, the ECB announced the launch of an expanded asset purchase program with combined monthly purchases of 60 billion euros or $70 billion, through end September 2016.
ECB President Mario Draghi said that this stimulus package will help in pushing inflation back towards 2 per cent during this year.
However, concerns about the global economy sustained gold's safe haven appeal, keeping prices afloat.

SPDR- Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, remained unchanged at 740.45 tons on Friday from its previous. 

US Economic Indicators- a Conference Board on Friday showed positive contributions from a majority of its components and stated that U.S economic indicators rose slightly more than anticipated in December.
This did influence gold prices but not to a great extent.

Eurozone- Eurozone private sector grew at the fastest pace in five months in January, flash survey data from Market Economics showed Friday. The composite output index rose more-than-expected to a five-month high of 52.2 in January from 51.4 in December. Economists had forecast the index to rise nominally to 51.7.

Gold prices ended modestly lower on Friday, on the above mentioned mixed global economic data with the dollar trending sharply higher even as the euro slipped significantly after the European Central Bank announced a massive, larger than expected monetary stimulus.
Gold soared to 5-month highs just above $1300 earlier in the week, but a swiftly rising dollar saddened the rally in bullion.

The coming week holds a lot of surprises for gold- Some of the noted ones are:

FED- The precious metals market will be focused on the Fed and their upcoming monetary policy statement on Wednesday. But markets believer that unlike the Bank of Canada and the European Central Bank, which both shocked markets this week, the Fed is unlikely to announce any major surprises.
The dollar is expected to be bullish as the Fed is not expected to shift their monetary policy outlook because currently the Fed remains one of the only central banks that are in any position to eventually raise rates.

Dollar- Next week, the gold market should re-establish its negative correlation with the U.S. dollar, and that steady rise in the greenback would be negative for gold.
However, the report also suggested that recent changes made to the European Central Bank's monetary policy may support precious metals prices.

Chinese Slowdown- Although China's economic slowdown can also hurt metals given the country accounts for almost half of world metal consumption,a sharp slowdown of the Chinese economy remains a low probability scenario at present.

Greece Elections- Traders are likely to turn to Sunday's election in Greece. Polls show the opposition Syriza party widening its lead to about 6% over the governing conservatives. If they get it then it raises the suspect that the Euro will likely open weaker again on Monday, helping gold in the process. The potential of more economic uncertainty and positive chart patterns provides a constructive backdrop for further gains in gold.

U.S. interest rates - "While downward pressure on precious metal prices is expected to become more pronounced when the U.S. Federal Reserve raises interest rates (expected in mid-2015), the European Central Bank's plan to purchase €60 billion of assets per month through September 2016 may put upward.

People are coming to the conclusion that while the ECB is getting more expansionary, the Fed may be forced to be less restrictive because of the headwinds to inflation from the drop in oil prices, which can trigger some delay in interest rate hikes and would be positive for gold.
To conclude, Low inflation, global risks, and firmer physical demand are all modest positives for gold and silver.

- Previous blog - "All Notions To See Gold at $800 Destroyed"

http://riddisiddhibullionsltd.blogspot.in/2015/01/all-notions-to-see-gold-at-800-destroyed.html