Gold expected to end the year on a positive note

Spot gold, which is down over 6 per cent this year, is close to a one-year low of $1,211.08 touched on July 19 as the dollar powered to a one-year high on expectations of higher US interest rates this year.

Gold's appeal has been fading this year with prices sliding near to the key US$1,200 level, partly because of an upbeat outlook on the US economy that's strengthened the dollar.

Gold prices were higher on Friday, after disappointing jobs data pushed the U.S. dollar lower but still remained near two-week lows. A stronger dollar and rising interest rates have weighed on gold in recent months.

Gold prices are seeing just modest gains in the aftermath of a U.S. non-farm jobs number that did not meet market expectations.

The U.S. employment report for July showed –
• A significantly lower-than-expected non-farm payrolls rise of 157,000 jobs. The number was forecast at up 190,000, but after
• Wednesday’s ADP national employment report for July that showed a rise of 219,000, many were looking for a non-farm jobs number north of 200,000.

Markets believe that U.S economy is on its path of gradual progress and hence they didn’t react much to these numbers. One more reason for less volatility could be the vacation season in U.S and Europe that continue to keep the, markets calm until U.S. Labour Day holiday.

Even though these numbers were below expectations, it did strengthen the Federal Reserve action to gradually increase interest rates.

The Fed left interest rates unchanged on Wednesday, as expected, but pointed to the potential for increased rate hikes due to strong U.S. economic data.

Higher rates are a negative for gold as the precious metal, which does not pay interest, struggles to compete with yield-bearing assets when rates rise.

Furthermore, the metal saw some relief on Friday as U.S. hiring cooled in July and China moved to support its currency.

But markets are now positive towards gold. Many analysts believe that we are already at the bottom of this cycle for gold, and they believe that gold prices will pull up from here in the next 6 months.
Reasons being-

Trade War- the US and China imposed import tariffs on each other, fraying nerves on financial markets. A further escalation in the trade war crisis will definitely push up gold prices.

Demand- After a slow season in Mat, gold is all set to run higher during the coming 6 months over rise in its demand.

The above chart shows what happened towards the end of each of the past five years, as Chinese and Indians loaded up on gold for Spring/Summer wedding gifts and as savings for post-harvest cash. There’s no reason to expect them behave differently next time around.

Dollar dependency-  the analyst are convinced that gold will continue to grow in value relative to currencies, particularly as more states seek to rid themselves of their dollar holdings.

Gold Holdings- According to the latest estimates, Russia and China are in 5th and 6th place in total gold holdings, respectively.  The US is estimated to have over 8,100 tons of gold. Germany, which recently repatriated its gold from the US, is in second place, with 3,371 tons; Italy is in third with 2,452 tons, and France in fourth with 2,436 tons. Moscow's historical record in total gold reserves was reached in 1941, when the USSR stockpiled some 2,800 tons of gold just before the start of the Second World War.

Looking at the above mentioned events, we think that gold is expected to bounce back from its year lows and wil head positive towards the year end.

APPETITE FOR GOLD DECLINED

 -By Mr. Prithviraj Kothari, MD, RSBL

In the past few weeks we have seen volatility in gold but then it has settled back on the lower trading range. With fall in gold holdings in the SDPR gold trust we have seen investors interest weakening in the yellow metal. Apart from the SDPR, the dollar has also played a crucial role in influencing gold prices and it will continue to do so in the coming months.

Although, US economy is on a mend, the actions taken by central banks (Euro-zone and Japan) to prop up its economies will likely result in to weakening of their respective currencies and strength in the dollar in turn prices heading lower.

Moreover, the decision coming in from the Swiss referendum not to boost its gold reserves, at the same time falling oil prices and diminishing investment actions are also signifying that the market has temporarily disowned gold and has been replaced by more interest generating assets in its class.

Earlier in the week economists admitted there was some downside risk to the employment forecast following Wednesday’s private sector payrolls data, compiled by payrolls processor ADP. The report was weaker than expected as corporations and businesses created 208,000 jobs last month. The unemployment rate for November was 5.8%, unchanged from October’s reading of 5.8%; economists were expecting an unchanged reading. The report also said that the labor force participation rate was unchanged at 62.8%. Last month we saw a very strong labor market as the reports released by the US labor department states a significantly higher-than-expected nonfarm payrolls report for November.

On Friday, the Bureau of Labor Statistics said 321,000 jobs were created in November, up from October’s revised level of 243000; October’s initial report said 214,000 jobs were created. September's employment report was also revised higher to 271,000 from the original report of 256,000 jobs. This was the biggest jump in employment since January 2012. The report noted that the 12 month average for employment was 224,000.

There was a huge growth witnessed in the jobs in November which was led by gains in professional and business services, retail trade, health care, and manufacturing.

Even though the jobs report was extremely impressive, gold did not extend sharp losses after its release. The previous two jobs reports saw upward revisions in employment gains, and wages also rose. The job gains in 2014 are the fastest rate since 1999

Gold prices dropped under $1,200 following a blowout November nonfarm payrolls report. It instantly fell by 10$ as there were further expectations that the Fed will start talking about the Fed funds going higher than expected. Such news is not motivating for the commodities markets and it further expected that gold prices will weaken.

Simultaneously we saw the US dollar rising on this news. The dollar index rose above 89 for the first time since March 2009. The dollar advanced to the highest since 2009 against a basket of currencies, cutting the appeal of bullion as an alternative asset. Dollar is trading currently at $ 1.228 against euro. Euro is slacking after the ECB left the interest rates unchanged.

The strong labor report further signifies the fact the Federal Reserve may soon hike rates and this could happen as early as next spring.

The only issue that could be of concern would be the wage growth reports as it was not seen to be that strong and could keep the Federal Reserve apart from pulling the trigger on interest rate hikes.

Before hiking the rates the Fed would want to see some further improvement in the wage growth which could practically happen if the current momentum in hiring is maintained and the underemployment rate continues to fall.

The labor markets have been improving rapidly over the past few months. The issue of concern now is the Fed’s reaction to its mid-December meeting. But if we see the global scenario gold prices in the international markets is expected to trade lower as a hangover of the recent run of losses.

In the near past, we have the dollar being the key influential factor for the weakened in the yellow metal and it is expected to continue to do so in the near future to.

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 - "Too Many Economies Putting Pressure On Gold"
http://riddisiddhibullionsltd.blogspot.in/2014/11/too-many-economies-putting-pressure-on.html