VOLATILE MARKETS: RSBL

 By Mr. Prithviraj Kothari, MD, RSBL

Markets were volatile as the week ended and this volatility was reflected in the movements of gold prices.

Gold prices fell on Friday, after shuffling between gains and losses as investors weighed concern about Europe's banking woes against heightened expectations of a Fed rate increase in December.

The yellow metal had fallen to as low as $1,311.95 on Friday – the lowest since September 21 – following news that Deutsche Bank was near a settlement with US regulators.

Amidst rise of uncertainty over the health of a financial industry, traders have shifted focus to gold to provide what it best does- safe haven. 

Traders are seeking for the yellow metal as uncertainty prevails after the news reports by Bloomberg that 10 hedge funds that do business with Deutsche Bank have pared their exposure. Its shares fell to a record low, and European and Asian equities retreated. There’s heightened haven buying as anxiety grows over the German lender, Australia & New Zealand Banking Group Ltd. said in a note.

Investors had been nervous about the uncertainty surrounding Deutsche Bank after some of its clients, among them several big hedge funds, were reported to have withdrawn securities or cash from the German lender amid concerns about its stability and their exposure.

But, on Friday, safe haven demand for gold dwindled after stocks in major markets largely recovered from a sell-off on easing concerns about Deutsche Bank. This lead to a fall in gold prices. Spot gold was down 0.3 percent at $1,316.32 per ounce during Friday trading hours.

As the session wore on, the focus turned to increasing expectations that the U.S. Federal Reserve will raise rates by the end of the year. Fed-funds futures, used to bet on central-bank policy, showed investors assigned a 61.6 % likelihood to a rate increase in December, up from 52% the previous day, according to CME data on Friday.

Expectations for higher rates tend to weigh on gold, which yields nothing and struggles to compete with Treasury’s and other investments when borrowing costs rise.

Hence there were sluggish sentiments in the market as it might have to edge lower before finding firm support.

A collapse in Deutsche Bank's already beaten stock had sent Europe into a fresh tailspin early on Friday and left world equity markets slipping towards their worst week in three months. Safe-haven demand had sustained bullion until the market turned its attention to U.S. economic data and important numbers coming from China.

The Commerce Department said on Friday that U.S. consumer Spending fell in August for the first time in seven months while Inflation showed signs of accelerating, mixed signals that could keep the Fed cautious about raising interest rates.

Let’s have a look on the key economic indicators-

US

   

• In US data released Friday, the core PCE price index was as expected at 0.2 percent but personal spending and personal income undershot at 0.0 percent and 0.2 percent.
• The Chicago PMI was better than expected at 54.2. Revised UoM consumer sentiment and revised UoM inflation expectations at 91.2 and 2.4 percent respectively were also better than forecasts.
•   A string of manufacturing PMI numbers are due from Eurozone countries as well as the US later today. The ISM manufacturing PMI, construction spending, ISM manufacturing prices and total vehicle sales from the US will also be of note.
•  In US data released on Thursday, second quarter final GDP growth came in at 1.4 percent quarter-on-quarter, slightly better than expectations of 1.3 percent. Weekly unemployment claims for last week was also better than expected at 254,000, against a forecast of 260,000.
• Pending home sales for August, however, fell 2.4 percent month-on-month – a 0.1 percent decline was called for.

China

• China’s official manufacturing PMI for September was at 50.4 (close to expectations of 50.5),
• China’s manufacturing sector remains in expansion mode alongside stable production and demand growths, the NBS said.
• But the foundation of the manufacturing sector’s stable growth is not solid as firms continue to face operating difficulties while industries eliminate excess capacities, the Bureau cautioned.
• The country’s official non-manufacturing PMI, which represents the services sector was at 53.7 in September, was up from August’s figure of 53.5.
• The official PMIs added to the continued Chinese growth story and risk on mood in markets, National Australia Bank said on Monday.
• For the time being The precious metals are looking quite diverse with gold prices struggling to rise and when they do they struggle to hold on to any gains
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  For the time being The precious metals are looking quite diverse with gold prices struggling to rise and when they do they struggle to hold on to any gains.

   
  

   
  
  
  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:
  "Buy And Hold Gold: RSBL"
  http://riddisiddhibullionsltd.blogspot.in/2016/09/gold-buy-and-hold-rsbl.html
   

BULLION MARKET HIGHLIGHTS- DECEMBER 2015- AUGUST 2016: RSBL

 By Mr. Prithviraj Kothari, MD, RSBL

AS 2015 came to a close, most traders expected that 2016 would be a year subjugated by a series of Fed rate hikes.

 

That belief strengthened in late-December 2015 after the Fed delivered on its promise – and raised interest rates for the first time in almost a decade.

 

In a widely telegraphed publication called the "Dots Plot", the Fed signalled that it would continue to normalize its monetary policy, and raise interest rates by a total of +1% through 2016 to a target of 1.375%, a "gradual" pace and in line with earlier forecasts.

Though gold was expected to be bearish on 2016, it showed upward prices movements and The World Gold Council attributed this rally to three principal factors:

• the widening landscape of negative interest rates in Japan and Europe;
• the devaluation of China's Yuan; and
• The realization that the Fed was bluffing on hiking the Fed funds rate, and wouldn't dare take any action that could knock the stock market lower ahead of the upcoming November elections in the US for Congress and the Presidency. 

While we are a few months away from the year end I would like to throw light on a few key highlights that influenced the bullion markets worldwide.

Fed Hike- on 4 January 2016, San Francisco Fed chief John Williams said he saw a steady campaign of interest rate rises. "There are still pretty significant headwinds" facing the US economy from weak overseas economies, the strong Dollar and housing related issues, Mr.Williams told reporters.

 

 

On 6 January, Fed deputy Stanley Fischer warned the markets could expect three to four increases in the Fed funds rate this year. Speaking on CNBC television Fischer warned:

"If asset prices across the economy – that is, taking all financial markets into account – are thought to be extremely high, raising the interest rate may be the suitable step."

Based on expectations of 4-Fed rate hikes to 1.375% by year's end, gold initially declined in the month of December to a six year low at $1054 per ounce. Most analysts expected the downfall to continue through 2016, but they were proved wrong.

 The price of gold suddenly surged 16% higher in the first quarter alone. Giving gold one of its strongest quarterly performance in nearly three decades.

SPDR- The world's largest gold-backed exchange-traded fund, SPDR Gold Shares (NYSEArca:GLD), surged in its holdings to the most in six years, jumping to 983 tonnes, and global gold holdings in ETFs topped 2,000 metric tonnes for the first time since June 2013 following the Brexit fallout, when gold buying sparked even more gold buying.

 

BOE-  On June 30th, Bank of England chief Mark Carney said the economic risks from Brexit had started to crystallize, and he hinted at a resumption of QE, lifting gold to its biggest one-day surge in years after Britons shocked markets by voting to leave the European Union, driving investors toward safe-haven assets such as bullion.  Gold soared as much as 8 percent to its highest in more than two years in the week ending 28^th June, 2016 after the UK referendum results, sending investors rushing for protection. Gold prices surged to its highest level in more than two years, at $1,359 since March 17, 2014, sending shock waves across markets.

BOS- by June 2016, all of Switzerland's government debt, including its 30-year bonds, started trading at negative yields.

 

In all, a record US$11.7 trillion of global sovereign debt has dipped to sub-zero yield territory. This has only strengthened the rally in gold, and about $13-14 billion of money has made its way into gold exchange-traded funds (ETFs) as asset managers moved from fixed income into gold earlier this year.

 

Gold climbed to a two-year high at $1371 per ounce in July, convincing UBS Group to predict that gold is probably at the beginning of its next bull run

BOJ- gold's spectacular rally found a stiff roadblock at the $1370 per ounce area when Japanese government bonds suddenly began to fall sharply into their worst sell-off in 13 years. On August 2nd the Bank of Japan shocked the markets and rattled gold traders by keeping its bond purchases steady, defying expectations it would buy even more.

 

 

Gold traders became even more nervous after the BoJ said it would re-evaluate its Negative Interest Rate and QQE policies in September. Some investors see the policy review as a tacit admission by the central bank that after more than three years of massive money printing, the BoJ could be ready to start tapering the pace of the QQE liquidity injections.

 

   

Since the $10.4 trillion bond market in Tokyo is at the core of the negative interest rate world, if the BoJ begins to allow Japanese bond yields to climb by tapering its QE scheme, it could continue to rattle the price of gold – at least on a short-term basis.

BoJ policy makers ordered staff to make a "comprehensive assessment" on the impact of its easing program and negative interest-rate policy ahead of the next policy-setting meeting on 20-21 September. Some traders suspect the review is aimed specifically at assessing the effectiveness of negative rates, potentially giving policy makers scope to declare the exercise unsuccessful.

So for the month to come, BoJ will surely have something crucial for gold in store.

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:

"Higher Gold Prices For The Domestic Market: RSBL"

http://riddisiddhibullionsltd.blogspot.in/2016/08/higher-gold-prices-for-domestic-market.html