Gold looks moderately bullish

This week is all about the much awaited FOMC meet. The Federal Open Market Committee meets between Jan. 29 and Jan. 30, and Chairman Jerome Powell is widely expected to acknowledge growing risks to the U.S. economy as global momentum weakens.

Speculations prevailed in the market that the Federal Reserve will keep its interest rates unchanged during its two-day policy meet. This led to a spike in gold prices, nearing a seven month high during the day. But later gold steadied.

Gold has a tendency to appreciate on expectations of lower interest rates, which reduce the opportunity cost of holding non-yielding bullion.

Currently, the European Central Bank is seeing downside risks to the economy. ECB President Mario Draghi warned last week that a dip in the euro zone’s economy could be more pronounced, comments seen as signalling a delay in the bank’s first interest rate hike.
Amongst this scenario gold is portraying a strong chance of solid upward movement.

Furthermore, the US Fed is also expected to be more accommodative. The Fed has already raised its interest rates four times last year. It has even given hints that it might life borrowing costs twice in 2019.  Analysts noted that Federal Reserve policymakers recently lowered their forecasts for 2019 from three rate increases to two. This should support gold.

This uncertainty is bringing about a rally in gold prices. Moreover, global equities, particularly Asian stocks rose higher, as Wall Street rallied after a deal was announced to reopen the U.S. government following a prolonged shutdown that had shaken investor sentiment.

There were great concerns over a slowing global economic growth and this shutdown has only increased the worries of the market. Not forgetting, the, signs of stress in corporate earnings and a still unresolved Sino-U.S. trade war.

Meanwhile we also expect a rise in demand for gold, especially in Asia. Usually gold is bought in Asian countries for weddings, occasions etc. But lately gold is being purchased for investment purposes. Investment demand for gold rises with an increase in wealth. In recent years, both China and India have rapid increase in the demand for gold, especially China. These countries have been active drivers of holding the metal in its physical form.

With regard to preservation of wealth, gold has an immensely long track record; providing a hedge against inflation, geopolitical risks, natural disasters and other crises. Currently private banks and wealth advisers might typically advise their HNW clients to hold about 3-5% gold in their investment portfolios. While an ETF provides gold exposure and is an excellent tool for short-term trading, physical gold is preferable for medium to long-term investment as it is highly liquid, lacks counterparty risk and affords investors more flexibility. Unlike property or stock funds, physical gold is a highly efficient wealth management tool for estate planning

Since gold has long been used as a safe haven asset the outlook for the yellow metal looks moderately bullish now.

The main trigger for sustained higher gold prices comes in the form of a gradual asset rotation from equities and other risky assets into bonds and safe-haven assets such as gold, as mainstream investors seek protection from market turbulences, potential recessions and growing bearish sentiment.

Moreover, the downside is somewhat limited, with current gold prices representing a floor, as bearish drivers are lacking, fundamentals are neutral and costs for the most expensive producers are close to current prices.

Gold - Half year analysis

We are half way through 2018 and we have already seen gold showing some interesting movements.

The first half of 2018 has been quite action packed for global financial markets. In US and Asia, most of the growth was captured by tech stocks. Equities experienced a few pullbacks during the first 3 months as geopolitical tensions increased. So far, investors seemed to have shrugged off the escalating trade war rhetoric between the US and many of its trading partners.

Gold was up by more than 4 % in the first few months of the year, but finished on a negative note by the end of June. This downward trend continued in July as gold dropped further. Though gold was volatile till the first quarter, it has been moving in a relatively low range since.

The three main reasons being-

• A strengthening US dollar
• Soft physical demand for gold in the first half of 2018
• Higher investor’s threshold for headline risk

Now coming to the second half of 2018. This year, there are plenty of factors which could lead to a medium-term gold price reset which could put that $1,400 price target back in its sights. This may sound over optimistic, but a lot of hope in being built mainly over the belief that we still have 6 months and of those, a lot of things are expected to happen over the second half.

We see a lot of factors that can reset gold price to $1400, we can broadly categorise them into 4 groups-

• Economic development and capital growth
• Global market uncertainties
• Capital flows and price trends
• Competing assets

So now where do we see the yellow metal in the coming months? Well we think that the outlook for gold will mainly be influenced by a few macro trends-

TRADE WARS AND THEIR IMPACT ON EXPORT IMPORT- President Trump’s planned tariff impositions against imports from China and elsewhere have been seen as positive for the dollar and the U.S. economy.  No matter that these tariffs are potentially inflationary in the domestic marketplace and that tit-for-tat measures being imposed on American exports could be very damaging to certain targeted U.S. exporters.

The counter tariffs being put in place could also see a downturn in export-oriented company stock prices, which could lead to a drift downwards in other equities and a drift down could spread to become a rout given the seemingly overbought state of the markets. Thus will have a positive impact on gold and may well push prices high.

EQUITIES - The long equities bull market, which does seem as though it may have come to an end this year, is seen as at least partly responsible for the lack of interest in precious metals investment.  A serious downturn in equities could thus drive investors back in the perceived safe havens of gold and silver.

An equities collapse, which many commentators have been predicting, could initially bring precious metals down with it with investors and funds struggling for liquidity and needing to sell good assets to stay afloat.  We saw this in the big market downturn in 2008, but gold, in particular, recovered any losses quickly and was rising when equities were still turning down.  This is a pattern which could well be repeated.


INCREASED GOLD HOLDINGS - Gold may well be one of the mechanisms being used to help reduce reliance on U.S. denominated reserve assets – certainly by Russia and probably by China which shrouds its central bank gold holdings in secrecy.  But even so this seems to be having little or no impact on the gold price at the moment – but it could have implications in the longer term.

In the long term we do feel that gold has a good future with falling supply and rising demand.  The big question is when will the price turn back upwards again?

Some say soon, while some still support the bears market. But we cannot ignore the fact that a lot can happen in the markets in five and a half months.  We would expect the dollar to start to fall back as the true impact of the Trump tariffs begins to be felt.  U.S. Fed Chair Jerome Powell’s latest fairly optimistic statement to Congress, seen as responsible, at least in part, for the latest gold price dip, in reality only confirmed what had been said before.

We think there’s a good chance that this will happen sometime in the final four months of the year and we might see the gold price reaching $1400 level by year end.

September proves to be the worst month of 2017 for gold so far

September was an action-packed month, with North Korean rockets and a succession of monster hurricanes all coming at the markets almost at the same time. Not forgetting the comments coming out from the Federal Reserve that contributed to thefrenzy by giving a clear signal of a December rate hike. In the process, it perhaps single-handedly helped the dollar index recover from a three-year low hit earlier in the month.

Amid a resurgent dollar, the month of September proved to be worst for gold since November 2016. However, as geopolitical tensions soar, with the standoff between the U.S. and North Korea probably topping the list, demand for precious metals surged with Gold ETF holdings rising most since Feb 2017.

Last week, gold prices ended lower on Friday as weak U.S. consumer spending and inflation data did little to alter expectations for a third interest rate increase by the Federal Reserve this year.
The dollar has risen in recent weeks as investors grow more optimistic about the prospect for U.S. rate hikes and tax cuts that some expect to boost the U.S. economy.

Data on Friday showed that
• U.S. consumer spending barely rose in August.
• Inflation also remained sluggish with the core personal consumption expenditures price index rising 1.3% year-on-year, slowing from 1.4% in July.
• The core personal consumption expenditures price index is the Fed’s preferred inflation measure and has a 2% target.

The data did little to temper rate hike bets after Yellen indicated earlier in the week that the central bank was sticking to plans for a third rate hike this year and three in 2018.

The metal recorded its biggest monthly decline so far this year in September, despite netting a quarterly rise of nearly 3 percent partly due to geopolitical tensions including North Korea’s missile tests.

The U.S. currency recorded its best week of the year on Friday, despite benign inflation data for August, as expectations that the Fed would raise interest rates again in December loomed large after Fed Chair Janet Yellen said the central bank planned to stay on its current rate hike path.
Higher interest rates tend to boost the dollar and push bond yields up, weighing on greenback-denominated gold

The dollar’s rise paused on September 28 and 29, but was seen gaining momentum on Monday morning.

Gold slipped to its lowest in nearly seven weeks early on Monday, 2nd October as the U.S. dollar rose and equities gained, while growing expectations for a Federal Reserve interest rate hike in December also added to pressure.

Spot gold was down 0.3 percent at $1,274.90 an ounce by 0353 GMT, after earlier touching its lowest since mid-August at $1,273.55.

Gold prices fell in Asia on Monday as the dollar gained and the euro dropped as investors mulled the implications of the disputed referendum on Catalonia independence in Spain on the euro zone and a sentiment survey out of Japan in a thin trading day with China's markets shut for the week and holidays regionally expected to see thin flows.

Elsewhere,The Bank of Japan released its Tankan survey for the third quarter with investors focused on the large manufacturer’s index as it rose to 22, compared with an expected reading of 18.

This week, comments by Fed Chair Janet Yellen will be closely watched for further hints on the timing of the next rate hike along with Friday’s U.S. jobs report. Market watchers will be looking ahead to remarks by European Central Bank President Mario Draghi on Wednesday.

Gold, silver and platinum prices continue to correct and the stronger dollar and lull in tensions over North Korea, seem to be weighing on prices. We would let the corrections run their course, but the North Korean situation is likely to escalate again at some stage, so the next rally in gold prices may not be that far away.

Bullish sentiments for gold

Gold for the week ended with a good sign, as it posted gains in the Friday session, continuing the upward movement we saw on Thursday.

In the North American session, gold was seen trading at $1323.74, up 0.18% on the day. This rise was seen post the release of the labor report told prices have enjoyed a strong week, gaining 1.9%.
The metal showed some strong gains earlier on Friday, as the metal touched a daily high of $1329.05, its highest level since November 2016. These gains were triggered by the disappointing non farm payrolls and wage growth reports for August, both of which missed their estimates.

On the release front, US job numbers were unexpectedly soft. Non farm payrolls slowed to 156 thousand, well below the estimate of 180 thousand. Wage growth also disappointed, as Average Hourly Earnings posted a small gain of 0.1%, shy of the estimate of 0.2%.

Although the US labor market remains tight, investors are fretting about the lack of wage growth, which has contributed to the low inflation which continues to hamper the US economy.

The Federal Reserve will also be perturbed by small wage growth, as a December rate hike is very much in doubt due to inflation levels which obstinately remain well below the Fed's inflation target of 2.0%. Currently, the likelihood of a December rate hike stands at just 36%

Gold is traditionally considered a safe-haven asset, and often benefits when investors get jittery and lose their risk appetite. Such was the case last week, as renewed tensions between the US and North Korea early in the week propelled the metal above the symbolic $1300 level.

On Tuesday, North Korea fired a missile over Japanese territory, drawing sharp condemnations from Japan and the US, with President Trump declaring that "all options remain on the table"

In times of uncertainty or crisis, investors typically take refuge in “safe” options like the Swiss franc, gold or the US dollar, but under President Donald Trump the greenback has lost its lustre, especially to the euro.

Although, tensions have since eased somewhat, if North Korea decides to fire another missile towards Japan or the US military base on Guam, gold prices will likely move higher. As well, as the markets digest the disappointing job numbers, we could see risk appetite continue to wane early next week, which could extend the current gold rally.

The reaction to the lackluster U.S. Non-Farm Payrolls (NFP) report suggests gold will continue to exhibit a bullish behavior ahead of the Federal Open Market Committee (FOMC) interest rate decision on September 20 as mixed data prints coming out of the economy sap bets for another rate-hike in 2017. Even though ‘the Committee expects to begin implementing its balance sheet normalization program relatively soon,’ the fresh forecasts from Chair Janet Yellen and Co. may ultimately heighten the appeal of gold if central bank officials attempt to buy more time and project a more shallow path for the Fed Funds rate.

In turn, U.S. Treasury Yields may stay depressed throughout the remainder of the year, and the precious metal may continue to retrace the decline from 2016 amid the shift in trader behaviour.
Weak U.S. economic data has effectively removed the Fed’s prospective rate rise scenario from the gold price equation – at least for a couple of months although may have an impact in November as speculation will reign over whether the Fed will implement another small rise in December, or kick the can down the road again.  The U.S. dollar is looking weak and a weak dollar tends to see the dollar gold price rise. And it is the dollar gold price which the market judges to be the most important indicator, even though the gold price in other currencies, like the euro or the yen, should perhaps be more relevant.

The seemingly increasing threat of war between North Korea and the USA, will likely give the gold price a huge boost in the days and months ahead with safe haven demand escalating worldwide – and particularly in Asia and the U.S. itself.

Roller Coaster Gold ride edges lower as US dollar regains strength

Gold has been witnessing downward pressure since the past two weeks. But in the last week this pressure became so austere that we saw gold dipping to its nine month low below the important$1200 level. At $1180 gold hit its lowest level since early February. Furthermore, Good US economic data, which caused the US dollar to appreciate, had fuelled the next wave of selling on last Thursday noon.

The US dollar index climbed to its highest level since March 2003. Furthermore, US stock 

Markets continued to rise, which suggests on-going high levels of risk appetite among market 

Participants, while yields on ten-year US Treasuries climbed above the 2.4% mark again for 

the first time since July 2015.

The US dollar index has continued to strengthen amid positive US economic data while putting pressure on the gold price. The index had reached as high as 102.05 on Thursday, the highest since March 2003.

In addition, gold ETF’s witnessed massive outflow, thus reducing their holding by 13.7 tonne putting them at a five-month low of only a little over 1,900 tons. This was already the tenth consecutive daily outflow.

During this period, ETFs have had their holdings cut by a total of 101 tons. 

Although gold in euro terms is faring somewhat better thanks to the firm US dollar, at €1,122 per troy ounce it nonetheless fell to its lowest level since early October. 

The spot gold price eased during Asian trading hours on Friday November 25 as a strong US dollar continued to weigh on the yellow metal.

The US was closed for Thanksgiving holiday on Friday which resulted in quieter trading leading into the weekend.

Gold recovered from an earlier nine-month low and moved into positive territory on the morning of Friday November 25 in London, reflecting a pause in the dollar’s rally.

This sentiment continued for this week, giving gold a positive opening on Monday.

Gold was in positive territory on the morning of Monday November 28 in London, with a slightly weaker dollar generally underpinning precious metals prices.

The dollar index was recently at 101.05, having been as high as 102.05 in the previous week, it’s highest since March 2003.

The spot gold price was recently quoted at $1,192.00/1,192.30 per oz, up $8.20 on the previous close. Trade has ranged from $1,187.05 to $1,197.70 so far.

The spot gold price edged lower during Asian trading hours on Tuesday November 29 as the US dollar regained strength.

Growing sense of ‘opportunity cost’ among investors could be behind a surprise fall in the value of gold, after the precious metal failed to live up to its status as an inflation hedge and safe asset.

Softer spot prices may encourage physical demand while the holiday seasons in both Asia and Europe approach.

Before the UD election, gold was expected to trade unpredictably but now that prices have more or lessstabilised, market for gold is expected to be bullish. Moreover, Mr. President has been talking tough on trade which further raises uncertainty and create nervousness in the market thus keeping the bullish trend alive for the yellow metal.

Gold should provide a good hedge against fallout from what political policy changes lay ahead, as well as from any correction in super-charged markets.

The commodity, traditionally regarded as a safe haven for skittish investors, was among those assets viewed as a potential winner in a year marked by significant market shocks and rising inflation expectations – which many now predict during a stimulus-happy Donald Trump presidency.

This sentiment, however, is yet to be borne out by the price of the precious metal. While other hedges such as inflation-linked bonds have performed relatively well, gold has been trending downwards, both in the months leading up to the US election and its aftermath.

AMBIGUITY FOR GOLD: RSBL

 By Mr. Prithviraj Kothari, MD, RSBL

As we all know, lately gold has been majorly influenced by any data released from the Fed regarding its interest rate.

Gold prices dropped in Asia on Thursday as China markets returned from holidays and investors stake positions ahead of Fed minutes later in the day.

Trading activity had become more muted as the September Federal Open Market Committee (FOMC) meeting minutes approached.

Investors awaited the release of the minutes from the Fed's September meeting on Thursday for further hints on whether the U.S. central bank could raise short-term interest rates before the end of the year.

A combination of a weakening US economy and sowing down Chinese one, led to a delay in the rate hike expectation.
Now majority of the market players believe that rate hike won’t come in before March 2016.

Gold prices climbed on Friday morning after the release of minutes of the Federal Reserve’s September meeting raised speculation that the US central bank could wait until next year before tightening monetary policy.

Spot gold was last at $1,154/1,154.40 per ounce, up $14.40 on Thursday’s close. Trade has ranged from $1,139.50 to $1,154.60 so far.

The shifting expectations are helping to weaken the U.S. dollar and in turn boosting gold prices. Early in Friday’s session, December gold futures ended up hitting their highest prices since late August and are preparing to end with gains of almost 2% for the week. As of 12:40 p.m. EDT, December gold last traded at $1,158.70 an ounce.


One of the main reasons, apart from soft data, that has delayed the rate hike is the limo inflation in the US. It has prevented the central bank for raising rates from near-zero levels, where they have been since December 2008. 

The FOMC decision not raise the federal funds rate has led a majority of market participants to look at 2016 for a normalization of US monetary policy.

To state the exact month would be quite difficult but it could be around March or June 2016.

The Fed has been locked in an intense debate over the timing of a rate hike with sagging inflation impeding a launch-off.

Interest rates have been at near-zero levels since December 2008 and haven’t increased since 2006.

The other data released along were-

• Weekly unemployment claims came in at 263,000, besting the forecast by 9,000 and under the psychological 300,000 mark.
• September import prices month-over-month fell 0.1 percent, beating the forecast of -0.5 percent
• Wholesale inventories month-over-month were in-line with projections at 0.1 percent 

The FOMC minutes elaborated on its concerns about global markets, particularly the Chinese slowdown.

The September minutes released by the FOMC Thursday evening suggested that policymakers are unlikely to rush to tighten rates amid concerns over a China-led global economic slowdown.

The minutes stated that although US economic data releases generally met market expectations, domestic financial conditions tightened modestly as concerns about prospects for global economic growth, centered on China, prompted an increase in financial market volatility and a deterioration in risk sentiment during the intermeeting period.

Chinese markets reopened after a prolonged holiday as US trading session was the final one before a holiday weekend.

The minutes further stated that although US economic data releases generally met market expectations, domestic financial conditions tightened modestly as concerns about prospects for global economic growth, centered on China, prompted an increase in financial market volatility and a deterioration in risk sentiment during the intermeeting period.

Weak data sees gold prices to be in the positive territory. Moreover, in the Indian markets we see demand for gold to move high as the markets welcome one of  the main gold buying festivals- Dussehra and Diwali.

On the contrary gold prices could move lower next week term as markets have priced in renewed geopolitical turmoil in the Middle East.

Most analysts, though, are bullish on gold as the market is seeing a technical shift. Many expect to see prices retest the August highs at $1,170 an ounce and the 200-day moving average at $1,178.20 an ounce.

Though gold prices are likely to move higher, a stronger equity market could take some momentum away from gold.

When the Fed does start raising rates, something it has not done in nine years, it will eventually mean higher rates for consumer and business borrowers. But Fed officials, including Chair Janet Yellen, have stressed that the rate increases will likely be very gradual, meaning that rates would still remain near historic lows for a while.

AN ACTION PACKED WEEK FOR GOLD

                                                                                                             -By Mr. Prithviraj Kothari, MD, RSBL

Yes Indeed…It seems like a miracle. It’s so surprising to see what a difference a few days can make as the gold market sees renewed optimism, ending the week solidly positive on the back of a weaker U.S. dollar and lower U.S. treasury yields.

Gold prices hit two-week highs on Friday and were poised for their biggest weekly jump since mid-January, after the U.S. Federal Reserve's cautious note on interest rates arrested a dollar rally and sparked broad-based buying of commodities.
Though the week began with a rough patch for gold by the end of the week it was a completely different scenario for gold.
On Tuesday, Gold fell to a four month low of $1,142.92 an ounce. Market players had expected gold prices to drop further amid the dollar's surge and speculation about when the Federal Reserve will begin raising interest rates.  

With positive economic indicators, the US dollar gets stronger. The interest rate hike expectation had further strengthened the dollar which meant that the future for gold is not good.


Following these sentiments the precious metal traded at $1,148.60 Wednesday morning and plummeted 12 percent in the last eight weeks.

Gold prices were seen heading towards a consecutive loss in the past seven sessions as a robust dollar and expectations of higher U.S. interest rates curbed appetite for the metal.
But Wednesday FOMC meet was a game changer for gold. Following  the Federal Open Market committee (FOMC) meeting on Wednesday, The Federal Reserve Chair Janet Yellen made it clear (again) those interest rates would not be raised until inflation gains more steam. With current inflation rates negative for the first time since 2009, and with the U.S. dollar index at an 11-year high, we can probably expect near-record-low interest rates for some time longer.

Post this news, gold prices sparked immediately rising nearly 2 percent, from $1,151 to $1,172. That’s the largest one-day move we’ve seen from the yellow metal in at least two months.

At the highest peak of the week, Spot gold was up 1.2 percent at $1,184.55 an ounce by 1:55 p.m. EDT (1755 GMT) after hitting $1,187.80

Wednesday’s FOMC policy meeting caused a stir in the gold market, which is now looking like it may close off the week on a positive note.


The U.S. currency fell as much as 1.8 percent against a basket of major currencies on Friday, after the Fed downgraded its growth and inflation projections earlier in the week, signaling it is in no rush to push borrowing costs to more normal levels.

Apart from the main game changer for the week, we saw following significant activities in the market.

• Post-Fed, the world's largest gold-backed exchange-traded fund, New York-listed SPDR Gold Shares, saw its first inflows since Feb. 20, also boosting sentiment. Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.24 percent to 749.77 tonnes on Wednesday - the first inflow since Feb. 20.
• In the physical markets, Chinese buying was steady, with premiums on the Shanghai Gold Exchange staying at a robust $6-$7 an ounce on Friday. Sustained physical buying could further support prices.
• Gold climbed on the heels of a softening U.S. dollar and focus in Europe turning back from its political problems to the [European Central Bank] stimulus rollout.
• Demand for gold from India picker up ahead of the auspicious occasion of Gudi Padwa.

Though there is not much data set to be released next week, analysts are expecting gold to continue to take its cue from the U.S. dollar. Most commodity analysts see room for the yellow metal to move higher as investors take some of their U.S. dollar profits off the table.

A significant number coming in for the week will be the housing date- release for existing and new home sales number.

Next week, financial markets will receive more housing data with the release of existing and new home sales numbers.

Apart from the key US indicators, one more thing that needs consideration is Greece. Investors need to keep a watch on what is happening in Greece as funding talks are expected to resume again. Greece is once again pushing back against austerity measures, but with no new funding deal, there is a chance they would default on their debt and be forced out of the Eurozone.

Any breakdown in funding talks next week is going to be positive for gold, as a safe-haven asset.
Though no major game changers are in queue for gold, the yellow metal will be taking cues from the above mentioned data.

TRADE RANGE

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1163- $1205 an ounce	Rs.25,700- Rs.27,000 per 10gm
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 -
"Gold To React To FOMC"

http://riddisiddhibullionsltd.blogspot.in/2015/03/gold-to-react-to-fomc.html

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

AN IMPRESSIVE START FOR GOLD IN 2015 BUT A DULL END

By Mr. Prithviraj Kothari, MD, RSBL

 

Every year, when we start afresh, each one has a hope- a hope that markets will do good. There was a similar feeling now as it was when 2014 began.

At the start of 2014 expectations were high that the gold market could shake off and recover from 2013’s drop, where prices ended the year in negative territory for the first time in 12 years.

However, despite strong optimism, gold once again closed the year in negative territory.
In the gold market, optimism was strong during the first half of the year. But later, the news hovering around the interest rate hike for gold pulled its prices down.

Fed’s interest rate hike played a significant role for gold in 2014. This helped drive the US dollar higher and pull down gold prices lower. 

By the end of 2014, Fed Chair Janet Yellen stated that interest rates will remain unchanged for the next two meeting. Hence analysts and economist expect that the Fed may bring in the first rate hike as early as June.

A thought some believe that interest rate hike may come in soon but there is part of the market who feel that any renewed expectation of looser U.S. monetary policy for a longer period could create some weakness in the U.S. dollar and in turn help push gold prices higher. 

Now we await next year’s crude prices and other commodities to see if inflation rears its head or if geopolitics suddenly moves gold.
This was a general scenario for 2015. Now let’s take a glance on the first trading day of 2015.
The first trading day of 2015 has been exciting for the gold market as prices have swung within a $27 dollar range during the session. Silver prices followed gold's volatility; as of 1:57 p.m. EST,
Gold closed 1.6% higher; reclaiming $1,200 after nearing $1,211 in intraday trade, as global risk-aversion and a weaker dollar boosted its safe-haven appeal.

Gold rebounded from a one-month low on Friday, as lower equities counteracted the impact of a stronger dollar and falling oil markets, but still posted its third straight weekly loss.
Spot gold fell to its lowest since Dec. 1 at $1,168.25 an ounce after the dollar strengthened, but rebounded to $1,194.10, up 0.63 percent at midday on a disappointing ISM manufacturing index report.
 

Gold added 0.2% to close above $1,186. Once again varied reasons behind this.

• Weak U.S. manufacturing data lifted demand for the metal as an alternative asset.
• The rising probability that a new Greek president, when elected, will break the terms of the ECB bailout sent yields Greek bonds and European stocks dipping as traders ran for safety in gold, silver, and the yen.
• Factory reports from Europe and China were even weaker. This added to the expectations that their respective central banks will be forced to add more stimuli.
• Gold was further supported by a falling dollar, which lifts demand for commodities denominated in it by making them less expensive to users of other currencies. 

Though we have always been discussing the precious metals market in general, this time I have also menti0oend the global economies which will down the line affect gold prices in 2015.


Chinese Economy- 

 
We all know that the Chinese economy is heading towards a slowdown. This has led to a rout in commodity prices, may continue to haunt global investors this year as well.
The country’s central bank helped the market with interest rate cuts and there is a reasonably good chance for a further cut, given that the real rate of interest is high.

US Economy

 
Like last year, this year too the interest rate move of the Federal Reserve will be a noticing factor to watch for.
The Fed believes that the risks to the outlook for economic activity and the labor market are nearly balanced and expects to remain ‘patient’ to regularize its stance of monetary policy, as per the statement published in December. 

Other Economies
The ECB will we forced to continue with its easy monetary policy as high unemployment, unutilized capacity and low inflation continue.
Apart from these, growth may inch up in Europe and Japan, but may drop in the UK.
Among the emerging markets, Russia will decelerate, while Brazil may not pick up appreciably. 

If you strongly believe that growth will improve globally his year then it could prove to be incorrect.
Thought the much-dreaded US quantitative easing (QE) concluded smoothly last year, but with Japan, Europe and China eyeing QE options, what may be in store for investors in 2015?
We need to wait and watch this for!

TRADE RANGE

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1180-$1207 an ounce	Rs. 26,000- Rs.27,500 per 10gm
SILVER	$15.40- $16.30 an ounce	Rs.35,000- Rs.37,800 per kg

- Previous blog - "Too Much Noise In The Market"

http://riddisiddhibullionsltd.blogspot.in/2014/12/too-much-noise-in-market.html