BULLISH SENTIMENTS FOR GOLD: RSBL

 By Mr. Prithviraj Kothari, MD, RSBL

Recently gold has been struggling to climb up due to the recurrent changes in the expectations of an interest rate hike. There is quite a possibility that market players are paying too much heed to the whole interest rate scenario and in turn missing on the bigger picture.

Nonetheless, Gold continues to work lower alongside the rest of precious metals – a resilient dollar and rising US real rates have prompted traders to unwind their long positioning. Investors have become increasingly edgy ahead of the conclusion of the Fed and the BoJ meetings

The spot gold price inched lower during Asian trading hours on Friday amid Mid-Autumn festival holidays in the region.

Spot gold was last at $1,314.66-1,315.00 per ounce, down $1.17 from Thursday’s close.

The spot gold price had tumbled to a week’s low of $1,307.75 on Thursday on selling pressures following a brief spike to $1,328.10 sparked by weak US retail sales data.

In data released Thursday-

• US retail sales in August undershot at -0.3 percent
• Core retail sales in August undershot at -0.1 percent.
• Industrial production month-over-month in August also disappointed at -0.4 percent
• The US PPI in August was unchanged; a 0.1-percent gain from the previous month has been expected.
• The core PPI – excluding food and energy costs – was in line at 0.1 percent.
• The Empire State manufacturing stood at -2.0 missed the expected -0.9
• The Philly Fed manufacturing index at 12.8 beat the predicted 1.1.
• Capacity utilization rate in August stood at 75.5 percent, a touch below the 75.8 percent
• Weekly unemployment claims for September 1-8 in at 260,000 were just below the forecast 262,000 and, more importantly, the psychological 300,000 mark.
• Lastly, the current account balance in June was in line with consensus at -$120 billion. Business inventories month-over-month was unchanged in July, missing the 0.1 percent forecast.

There was disappointment in the markets when the data was released that showed signs of a softening US economy,.aThe US economy has recently shown signs of softening – data including retail sales, its PPI and industrial production have undershot.

While disappointing numbers have lowered the likelihood of an imminent Fed rate increase - for September was just 12 percent, November was 19.3 percent and December was 46.2 percent. Earlier this week, majority had expected a rate hike in December.

With such soft data coming in from the US, expectations have largely diminished towards the Fed doing anything in September and the market is drifting back towards the view they might do nothing for quite a while.

Some even feel that markets are overeating to a potential rate hike and giving too much attention to it, thus ignoring other crucial factors that have the potential to influence gold prices.

The market is once again divided between the supported of bulls and bears for gold. The ones that are bullish are not worried about gold’s recent downtrend. What is the most important factor for investors is that the gains seen so far are sustainable and that gold has more or less stabilised before it takes that long jump to rally.

They believe Fresh disappointing US data has reinforced our view that the Fed should remain on hold in September, resulting in renewed weakness in the dollar and US real rates and prompting fresh buying in gold.
Moreover, demand for gold from China and India is expected to rise over the months to come which will further boost gold prices higher. The market is  moving towards to a festive season and this period of the year has generally seen demand for gold rising and this rise in demand will make up for the weakness gold has faced over 2016.

Given that gold is heavily influenced by fluctuations in the dollar and US real rates, we are not surprised by the metal continuing to weaken. But the bullish supporters for gold also believe that this weakness is temporary and is currently driven by a stronger dollar and higher US real rates

Our big-picture outlook remains bullish but more profit-taking could easily be triggered if the price action disappoints, as it may be starting to do.

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 STABILISES: RSBL"

 http://riddisiddhibullionsltd.blogspot.in/2016/09/gold-stabilises.html

GOLD STABILISES: RSBL

By Mr. Prithviraj Kothari, MD, RSBL

Though gold slipped consecutively for 3 days, past week ended on a positive note and stayed on track for a second successive weekly gain driven by diminishing expectations of a looming hike in U.S. interest rates.

The metal was up 0.7 percent during the week, holding on to nearly half the sharp gains it made on last Tuesday after a weak U.S. data instigated talks that the Federal Reserve will hold off raising rates at its September policy meeting.

Spot gold was down 0.25 percent at $1,334.60 an ounce at 1152 GMT on 9th September, while it peaked $1,352.65 an ounce after rallying 1.8 percent on Tuesday.

Reasons being the same- Fed Hike, US data, US dollar and ECB. These factors have been repeatedly influencing gold prices since quite some time. Yes I know that we have discussed these points time and again, and we all know that they  keep influencing gold prices but thee way and the extent to which they influence does change every week and hence we once again throw light on this week’s gold’s behaviour-

ECB- On Thursday, the European Central Bank (ECB) decided to maintain its current bond-buying programme and kept interest rates unchanged, surprising investors who had expected another round of quantitative easing in the wake of the UK’s vote to leave the single market.

The ECB’s unexpected stance led to a broad-based selloff in the commodities sector, while also fuelling a dollar rally – last trading at 95.45 on the dollar index, the highest point in a week.

Analysts and traders believe that The ECB’s decision would also increase the likelihood of the US Federal Reserve implementing a rate hike before the year end.

Global Data- Meanwhile in a slow data day, US wholesale inventories for July were unchanged, missing expectations of a 0.1 percent rise.

Overnight, China’s August CPI came in at 1.3 percent, below July’s reading of 1.8 percent and market forecast of 1.7 percent.

The Chinese August PPI fell 0.8 percent, improving from a drop of 1.7 percent in July and better than consensus of a one-percent drop. August, however, marked the 54th straight month of decline.

Weak global data pushed gold prices high over the week.

US Dollar- Prices have largely moved in concert with the dollar – against a basket of currencies it recently hit a multi-week low and was last trading at 94.56.  But investment demand in gold and its potential upside remain capped

The combative rhetoric – along with employment claims coming in better-than-expected at 259,000 – led to a minor dollar revival earlier during US trading hours.

Gold has rebounded strongly but have seem too stabilised between $1,355 and $1,375.25 and analysts believe to remain more or less in this trading range. But with the dollar looking weaker, we would not be surprised if gold prices work higher. The rest of the precious metals would follow suit.

Fed Hike- Richmond Fed President Jeffery Lacker said on Wednesday the case for a September hike was going to be “strong” and echoed his colleague Esther George who said that she too saw the US labour market approaching full employment.

Market participants currently see a 21 percent change of a US rate hike in September, with majority expecting it to happen in December, according to the CME FedWatch Tool.

Gold prices will trend higher still in near term, largely driven by lower Fed tightening expectations.  Gold prices are expected to boost further, given that the Fed is unlikely to move in September and the current probability of a September move is likely to ease further.

The Federal Reserve will meet on September 20-21 and again on November 1-2 before the country goes to the polls on November 8. Given the looming presidential election and the forecast-missing jobs report for August, the US central bank is widely expected to hold off on raising rates until next year at the earliest despite increasing hawkish rhetoric from FOMC members.

Federal Reserve Bank of Boston President Eric Rosengren, who shifted his stand in recent months in favour of monetary tightening, warned Friday that waiting too long to raise interest rates risks overheating the economy. Higher rates make bullion less competitive against interest-bearing assets. The comments come a day after the European Central Bank played down the prospect of an increase in asset purchases.

In the two-week run-up to the Fed’s next policy meeting, additional US economic data releases will further inform the market’s view of rate hike probabilities. At the current time, the greater likelihood is that there will be no September rate hike. If this continues to be the case, gold could potentially break out above the noted downtrend line and $1350 resistance level. In this event, the next major upside targets are at the mentioned $1375 high, followed by the key $1425 resistance objective.

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:
"BULLION MARKET HIGHLIGHTS- DECEMBER 2015- AUGUST 2016: RSBL"
http://riddisiddhibullionsltd.blogspot.in/2016/09/bullion-market-highlights-december-2015.html