RSBL Gold Silver Bars/Coins

Monday, 25 March 2019

Fed puts the dollar in red

Gold is traditionally used to hedge against economic uncertainty. As sanctions fall into place and the screws tighten on other nations, the U.S. dollar loses power within the world economy.

Where 2011 gold saw its life time high at 1917.90, in 2015 it bottomed at $1047. That was followed by a 31% rally to $1375 in July 2016, since when gold has established a triangular consolidation pattern. Last August, the price sold off to $1160, becoming oversold to record levels. That established the second point of a rising trend, marked by the lower solid line.

As 2019 started, gold was seen on a positive note. Gold has rallied and established support at $1280-$1305. And it is expected to move further from here.

Last week, Precious metals surged upward in Asia-Pacific trading, building on gains from Wednesday following a dovish construed U.S. Federal Open Market Committee. 
Gold has been as high as $1,319.80.

While the dollar saw some respite from the late New York declines, precious metals continued to firm as participants considered the implications of the Fed’s growth projections.
Gold saw the $1,310 pivot level remain intact, while seeing a generally orderly ascent throughout the session toward $1,320.

Global markets look deteriorating in the new future. Hence we will see a rise in government borrowing in the deficit countries. Dependency on dollar denominated assets will reduce.
Once again Gold has established itself as an asset with great safe haven appeal. It has become the investor’s favourite due to many reasons and is expected to do so in the near future too.

Reasons being -

Global economies - wave of monetary inflation suggest that the dollar-based financial order is coming to an end. But with few exceptions, investors own nothing but fiat-currency dependent investments. The only portfolio protection from these potential dangers is to embrace sound money - gold. And hence demand for the yellow metal will rise resulting in an increase in its prices.

Dovish comments from FED - Some speculators appear to have gambled badly on the likely content of U.S. Fed chair, Jerome Powell’s latest statement following Federal Open Market Committee (FOMC) meeting.  Ahead of the statement the gold price dipped back under $1,300, albeit briefly, for the first time in several days.  But following the release of Powell’s statement it surged higher hitting the $1,320 level very briefly for the first time in just over 3 weeks.

Monetary policies - The global economy is at a cross-road, with international trade stalling and undermining domestic economies. Some central banks, notably the European Central Bank, the Bank of Japan and the Bank of England were still reflating their economies by suppressing interest rates, and the ECB had only stopped quantitative easing in December. The Fed and the Peoples’ Bank of China had been tightening in 2018. The PBOC quickly went into stimulation mode in November, and the Fed has put monetary tightening and interest rates on hold, pending further developments.

Central bank buying - Russia is not alone in seeking to diversify out of U.S. debt holdings and transfer wealth into precious metals. As Per the World Gold Reserve, Gross purchases of 48 tonnes (t) and gross sales of 13t led to global gold reserves rising by 35 tonnes on a net basis in January, with sizable increases from nine central banks. This is the largest January increase in gold reserves in our records (back to 2002) and illustrates the recent strength in gold accumulation.

The primary factor cited in gold purchases seems to be global economic uncertainty. If sanctions grow tighter and more numerous, the global economy will continue to shutter. The stage is ready for gold transfers in the hundreds of tons this year, with several countries building growing gold stockpiles.

Rate hike - The latest statement was interpreted as predicting no further Fed interest rate increases this calendar year and perhaps only one rate rise next year.  It was further interpreted to suggest no rate rise in 2021, but that is, in reality, too far ahead for this position not to be materially altered one way or the other at a later meeting. A delay in a possible rate hike has compelled gold to move higher. And if it continues to do so till 20121, as expected by many market players, then we will gold reach new level highs in a few years. Bur back to Powell’s post-FOMC meeting statement.  There wasn’t anything too surprising in it – or at least there shouldn’t have been – as it largely confirmed what most economic analysts had been predicting regarding Fed tightening over the next several months.  But then perhaps the aforementioned analysts needed semi-official confirmation of their assumptions.

Inasmuch as worries about Fed rate rises had been instrumental in keeping the gold price restrained over the past two to three years, the prospect of the Fed backtracking should be positive for gold and negative for the dollar were it not for a similar, or worse, downturn in the global economy.  This may keep the dollar stronger than the Fed, or President Trump, would like.  That correlation would tend to boost imports and hinder exports, thus exacerbating America’s already dire current account deficit and countering any positive effect from the Trump tariff impositions.

Friday, 15 March 2019

Market Sentiment Bullish

Generally in my blog, I have mentioned about how gold has been behaving, or the=e weekly outlook for gold etc. But in this blog I have mainly picked 4 factors that I personally believe will influence gold prices in the near future. It has been a good year for gold so far and investors believe that gold is here to stay.

A positive sentiment in the market is supported by the following factors-

Weak US dollar - We have always seen that gold is inversely related to the dollar. This relationship has proved to be fruitful strong and table for gold over a period of time. Gold has a tendency to rally when dollar weakens. Sometimes there has been strange behavior where gold and dollar both have declined together. But the situation was different at that time. It happened in an environment when US real yields rose, which depressed gold prices, while real yields elsewhere rose more than US real yields, pushing the US dollar lower. These situations are exceptional. If the US dollar weakens or strengthens in tandem with interest rate spreads than gold prices move in the opposite direction. If the US dollar weakens because of unfavorable spread movements, but US yields still move higher, gold prices will suffer versus the US dollar because gold doesn’t pay interest.

So keeping the exceptions apart, gold prices generally move opposite to the dollar. And in the near term, since dollar is expected to weaken, gold prices are expected to move higher.

Fed -When we mention dollar, we can’t forget to make note of the Fed as time and again dovish comments from Fed have influenced the dollar and furthermore the yellow metal.  The Fed to remain on hold, and other major central bank to hike less and/or later. Less hawkish central banks are a positive development for precious metal prices in general and for gold prices in particular. Moreover we expect the 10 year US Treasury yield and US 10y real yields to decline slightly. This should support gold prices.

Chinese economy - After the US, it’s the Chinese economy that stands second in influencing the yellow metal. The developments in the Chinese Yuan reflect the expectations for the Chinese economy and the US-China trade conflict.  With trade at war, China won’t sit quiet; it may continue to take some actions to strengthen its economy.these measure along with a possible US-China trade deal will support the yuan and gold prices.
Adding to it, we have seen that lately China ah been piling up its gold reserves. China is one of the leading consumers if gold and rising demand will surely push gold prices high.

Optimist sentiment - the technical picture of gold prices still looks positive. Despite the recent sharp decline in prices, prices are still above the 200-day moving average at around USD 1,250 per ounce. We are confident that prices will stay above this level. It is possible that prices drop towards this level and test it, but this would be an opportunity to position for higher gold prices. A sudden short-term rally in the US dollar or a temporary spike in 10y US Treasury yields (not our base scenario) could trigger profit taking on existing net-long gold positions. Later in the year we expect the positive momentum to build and gold prices to rally more strongly.

Monday, 11 March 2019

Gold expected to perform well in 2019

Last fortnight gold fell near two week lows. It was heading for its biggest weekly fall in nearly four months on 28th Feb. A strengthening dollar backed by rising equities created pressure on the yellow metal. Better sentiment on the stock markets and a reluctance by the physical gold investors are weighing on its price.

The dollar favored over the Jobs data and Gross Domestic Product news. This resulted in some long liquidation. The dollar, which gained impetus from better than expected fourth quarter U.S. GDP data, hit a 10-week high against the yen.

Rallies in the dollar were taking their toll on gold much more than they were a few weeks ago which is a clear sign that sentiment towards the yellow metal has shifted.

Just when the sentiment towards the yellow metal shifted, gold prices soared in the past week.  Gold prices soared to their highest level in 10 months on Tuesday, driven by technical buying, dovish central bank commentary and continuing uncertainty as the end of the 90-day trade truce between the U.S. and China draws near.

Just when investors became pessimistic about gold, some developments in the trade war resulted in the yellow metal hovering to its 10 month high on Wednesday mainly due to Fed comments and Equities.

Fed - Looking beyond the dollar’s relationship with gold, the yellow metals prices have been boosted by Fed commentary recently. The markets in general reacted favorably to the dovish tilt adopted by the Fed following its December rate hike.

Equity - Stocks were still climbing on Tuesday with key indices like the S&P 500 and Dow Jones Industrial Average on a steady upward march since the beginning of the year. However, both indices started to struggle early Wednesday as investors awaited the latest commentary from the Federal Reserve.

Gold found further support from job numbers released in Friday.

On Friday, prices got a jolt after a report showed that US hiring last month was the weakest in more than a year. The news helped gold push back above US$1,300 an ounce amid renewed demand for a haven.

Spot gold later settled at US$1,298.30 an ounce, down 1.14 percent for the week.
Gold has been caught in a tug of war. Four straight months of price gains amid economic hand-wringing gave way to losses last month as the US dollar gained traction.

The two main factors that are expected to influence gold in the months to come-

Dollar - Despite the recent strength in the dollar, the U.S. currency is expected to weaken “noticeably.” When that finally does happen, it should boost gold prices further—if the usual negative correlation between the two assets returns. They believe “a fair amount” of the greenback’s length has been removed but still see it as “structurally overvalued.”

Central Bank buying - central banks, especially Russia and China, have boosted the share of gold in their foreign reserves. Other analysts have also pointed out this same thing recently. The World Gold Council estimated a 74% year-over-year increase in this “official sector demand” in 2018.

Short term factors like US economic numbers and long term including a more dovish U.S. Fed, U.S.-China trade war, Brexit, Italian recession, fear of global economic slowdown, equity volatility, and increased central-bank buying are expected to push gold higher and help it   perform well in 2019.