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