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Showing posts with label Buy Gold. Show all posts
Showing posts with label Buy Gold. Show all posts

Thursday, 26 March 2020

Gold Still Remains An Investors Favourite

















It was like a sabbatical for me as I write after a fortnight. There was too much volatility in the markets where prices were just swinging. Varied reasons being responsible, I actually wanted to take time out, analyse the global scenarios and then put across my inputs on gold’s behaviour.

Last week we saw unprecedented government action to get on top of the developing COVID-19 situation in Australia to avoid what we have seen in other countries. Not surprisingly, the combination of continuing falls in financial markets across all asset classes, societal restrictions and talk of further controls had investors running to safety.

Globally we witnessed acceleration in volumes and this has been the case across the whole physical bullion industry talking to our many contacts.

What has confused many is that they can see the massive demand for physical gold and silver while at the same time the price of the metals has fallen – at least in US dollars. The volatility in the spot price reflects a battle between the physical market and paper desk traders and trend following algorithms.

Last week there were a lot of articles that were similar to those back in the global financial crisis – stories about shortages and that the physical market and the paper market are, or have, disconnected.

The driver behind those stories has been the reality of physical products selling out and going on back order along with increases in premiums. This has been particularly the case in America, which has this week only really woken up to the threat of COVID-19 - resulting in increased demand for physical gold and silver.

The stand-out country at the moment is the USA which is paying a terrible price for the apparent downplaying of the virus in its early stages by President Trump, who as recently as February 28th referred to the virus incidence in the U.S. as a hoax, and saying the virus would miraculously go away.  No doubt many Trump believers thus treated any dire warnings of the pandemic as hugely overblown.  Now we are in a situation where the U.S. is the third most affected country in the world and if the virus spread continues at its current rate could even overtake China as the world’s most affected nation within a month.

The entire world is now aware or rather panic about the deadly virus. This panic is creating significant movement in the precious metals market.

Precious metals have seen price falls along with the equities markets, but in the case of gold not nearly to the same extent.  It keeps on being taken down below the $1,500 psychological level, but so far has invariably bounced back  Year to date the yellow metal is down around 1% while U.S. equities for example are down around 35% over the same period.  But this price fall is in U.S. dollars.  In most other countries, due to dollar strength, gold is close to all-time highs in domestic currencies and is thus serving extremely well as a wealth protector in these nations – indeed in most of the world.

Like most asset classes, gold is being affected by the unprecedented economic and financial market conditions in play around the globe. We believe that recent volatility in the gold price has been driven by massive liquidations across all assets, and likely magnified by leveraged positions and rule-based trading.

Gold has also likely been used to raise cash to cover losses in other asset classes because:

it remains one of the best performing asset classes year-to-date, despite recent fluctuations
it is a high quality and highly liquid asset, trading over US$260 billion (bn) per day in March

Looking ahead, we believe the deceleration in economic growth will undoubtedly impact gold consumer demand and gold’s volatility may remain high, but high risk levels combined with widespread negative real rates and quantitative easing will be supportive of gold investment demand as a safe haven.

But what we need to really know is that Why did the gold price drop alongside stocks?

The answer is linked to several factors. The most prominent of these is the massive liquidation virtually all asset classes experienced in the past week. And gold was no exception.

Even longer-term US treasuries prices fell, despite a second unscheduled cut by the Fed on 15 March slashing the Fed funds rate to pre-2016 levels. The 10-year US treasury yield is trading above 1% after reaching a historical low of 0.33% on 9 March.

As a high quality, liquid asset gold may also have been used to raise cash.

It may take a while for financial markets to stabilise. Amidst high volatility, the gold price may experience additional swings, but the long-term implications of an environment combining high risk and lower opportunity cost should support gold investment demand.

We also expect central banks to remain net gold buyers overall, albeit likely not at the same rate as in the past two years.

Bullion is set for back-to-back weekly losses for the first time since September after the dollar hit a record, although its drop was pared Friday as investors took stock of the outlook for the global economy, the spread of the disease, and looser monetary policy. With deep losses in risk assets this month, some investors have been forced to sell gold to raise cash. A similar pattern -- losses at times of extreme market stress -- was seen in bullion at the onset of the global financial crisis in late 2008, before it went on to peak in 2011.

These major crashes show that Gold and silver eventually respond to the crisis of the time and prices ultimately soar.

You’ll notice this occurred during periods of both inflation and deflation. While they both tend to do better in inflation, they ultimately rose in response to crisis.

This of course is what we have on our hands now. History says that despite the current selloff in gold and silver, the crisis will draw in more and more investors and as a result, eventually impact their prices in a major way.

Prithviraj Kothari is the author of this article. Find more information about Prithviraj Kothari.

Friday, 13 March 2020

Gold Might Come On For Profit Taking
















It has been a strong start to 2020 for gold, with the yellow metal rising by 12.99% in AUD terms, and 4.54% in USD terms in the first two months of the year, despite the sharp correction in precious metal prices last Friday.

Onto these wild market swings and uncertainty, gold once again provided a safe haven against emerging turmoil. The biggest weekly gain since 2009 took it to levels not seen for seven years, leaving both silver and platinum trailing in the process.

The coronavirus outbreak has worsened to now more than 95,000 infected worldwide and has spread globally. The threat of the coronavirus on global economic growth has now impacted all asset classes, global trade, liquidity and central bank policies.

It was in mid-February when the severity of the economic impact of the coronavirus began to be reflected by major companies, such as Apple when it provided earnings warnings. For several weeks major parts of China were locked down (closing businesses) to contain the outbreak. The impact was a reminder of how important China is in the global supply chain and its impact on global growth. Yields fell, yield curves flattened and inverted inflation expectations rolled over and commodity prices collapsed.

The negative economic impact of the coronavirus that for weeks has been signalled through weakness, finally spread like a wildfire to the rest of the market. The week kicked off with an emergency 50bp rate cut by the U.S. Federal Reserve, a move that only strengthened the sense of panic in the market. Within a few days, global sovereign bond yields had collapsed to a record low, gold and stock market volatility spiked while the dollar came under some significant selling pressure as longs were exited.

On March 3, the U.S. Federal Reserve (the "Fed") made a surprise emergency cut in interest rates taking the Fed Funds rates down 50 basis points to a range of 1.00%-1.25%. The rate cut made an immediate, positive impact on gold bullion and gold equities.

The emergency rate cut from the U.S. Federal Reserve on Monday, is, according to market expectations, likely to be followed by another 50 bp cut at the regular FOMC meeting on March 18. So far, the low point stands at 0.20% which could be reached before the November U.S. elections.

A perfect storm of supporting factors drove gold’s rally and outperformance. Safe haven demand aside, it was the collapse in U.S. 10-year real yields to -0.60%, a seven-year low, sudden dollar weakness - as yield spreads to other currencies collapsed - and continued stock market weakness.

There is a clear rush to safe haven assets at the moment and gold is a major beneficiary of this situation. Monday trading saw another blood bath emerge on global stock markets.

Where the world is just trying to accept the impact this virus has created all over, another shock to the global markets was the breakdown of relations across the OPEC+ group.

As if corona virus panic was not enough, this was an add-on to rock investor confidence world over. Fears that waves of oil from Saudi and Russian wells are about to hit the market- has provided a sucker punch to market sentiment.

The ultimate safe haven asset in these troubled times is clearly gold. Its sentimental qualities are eternal, while the hard currency’s role as a hedge against inflation makes is a particularly attractive asset to buy today, Central banks have already been loosening monetary policy like crazy to support global growth over the past year. More stimuli is coming down the line following the Fed’s interest cuts of last week to offset the impact of the coronavirus, too.

That is why if you get a dip in gold prices, add to it. Dedicating your entire portfolio to one particular asset is not a wise decision. In fact, I, would rather advise investors to allot around 10-15% of their portfolio in gold so that it becomes a hedge tool.

It’s a different world altogether now. There is collateral damage on most risk portfolios and the lone survivor of gains is fold which is nearly up 12 % on global futures and 17% on local futures markets. So gold will keep on coming for massive profit taking if funding losses of other assets is needed.

Prithviraj Kothari is the author of this article. Find more information about Prithviraj Kothari.

Thursday, 5 March 2020

Emergency Rate Cut Pushes Gold Prices Higher
















After getting caught up in last week’s punishing virus-driven sell-off, gold is seeking to refresh its haven credentials. The metal advanced after a weekend of negative developments, including a surge in virus cases around the world. With rising expectations that central banks will now act, Friday’s big slump in gold was put down to investors’ forced selling to cover losses elsewhere.

Bullion is always considered the safest mode of investment during crisis. Given that, investors tend to sell gold, as prices rise, during extreme turmoil, in order to cover-up losses incurred elsewhere. Similar pattern was seen last week where gold was sold off heavily, a situation that was last seen significantly during the 2008 financial crisis.

Gold prices plunged over 4.5% on Friday, with precious metals joining a broader market selloff as investors liquidated positions to meet margin calls in other assets.

Investors were cashing out to cover losses and meet margin calls in other markets. This does not mean that investor attitude towards gold has changed or that investors have started losing faith in the yellow metal. Gold is still perceived as a safe haven asset and shall continue to do so.

And we did not have to wait too long to prove it. After witnessing a drop in prices on Friday, gold bounced back on Monday, as it rose 1 percent.

Even equities had rallied initially  as the Bank of Japan followed the US Federal Reserve in vowing to take action to stem the impact of the novel coronavirus, with Tokyo launching a new raft of bond purchases and continuing to buy stock-market ETF funds.

Bank of Japan Gov. Haruhiko Kuroda said the central bank would take steps to steady markets, and bolster liquidity through short-term lending operations and asset purchases. On Friday, Federal Reserve Chairman Jerome Powell issued a rare, unscheduled statement, emphasizing the central bank’s intention to act appropriately to address the risks posed by the coronavirus.

A second death from the virus in the U.S., has raised fears of a wider spread of the disease domestically and investors are starting to believe that the Fed and other central banks will act to tamp down expected economic shocks from COVID-19, the infectious disease that originated in Wuhan, China late last year and has rapidly spread across the globe.

The global death toll from the illness stands at more than 3,000, and deaths in China stand at 2,900, according to recent reports.

The coronavirus outbreak continued to take its toll on activity as China reported more than 78,800 infections with almost 2,800 deaths so far. Concerns about the global economy mounted as the virus spread in other countries.

 Gold rose more than 1% on Monday, rebounding from a steep decline across precious metals, amid investor hopes the U.S. Federal Reserve will cut interest rates to cushion the impact of the fast-spreading coronavirus.

Expectations for a Fed interest rate cut at the March 18 meeting are rising “and gold’s appeal as a safe haven is still strong” as the likelihood of “further coronavirus problems and upcoming political headlines in the U.S., Israel, South America, Greece, euro zone and Middle East worries are still intact.”

Fed Chair Jerome Powell said that while the U.S. economy remained strong, the coronavirus “posed an evolving risk” and the central bank stood ready to take action if needed.

Following Fed chairman Jerome Powell's statement that the US central bank will "act as appropriate" as the virus poses "evolving risks" to the economy, markets were expecting a certain rate cut when the policy committee would meet on March 17-18

But what happened on Tuesday took the markets by a sudden shock.

Gold prices rose on Tuesday after the Federal Reserve announced an emergency rate cut Tuesday of half a percentage point in response to the growing economic threat from the novel coronavirus.

Spot gold was up 3.3% at $1,643.85 an ounce, having gained more than 1% in the previous session. U.S. gold futures firmed 3.1% to $1,644.10.

The move was the first such cut since the financial crisis. It comes amid a volatile patch on Wall Street and amid a steady stream of pressure from President Donald Trump, who has called for lower rates to stay competitive with policy at other global central banks.

Expectations of rate cuts by the Fed and negative yields in the euro zone, Switzerland and Japan have supported gold prices. Not from a safe haven point of view, but because at least gold does not charge a penalty (which negative-yielding currencies do). So, gold rallied with stocks because at the time it was a risk-on investment.

Prithviraj Kothari is the author of this article. Find more information about Prithviraj Kothari.

Saturday, 29 February 2020

Growing Number Of People Buying Gold
















Gold is trading near a seven-year high, supported by an increasing number of coronavirus cases worldwide that threaten to curtail global economic activity. Gold has been rallying not only due to the virus but also due to the overall global economic growth.

Coronavirus- gold has been rising amid continuing worries over the Wuhan coronavirus. The price of gold bounced back from the weekly low ($1625) as COVID-19 showed no signs of slowing down, and fears surrounding the coronavirus kept the precious metal afloat as the outbreak dampened the outlook for global growth.

Gold edged higher on February 26 after a sharp drop in the previous session, as investors sought safe haven assets following a warning from the United States over the potential domestic spread of the coronavirus.

Global economy- After surging 18% last year, gold has extended its rally in 2020, with prices hitting the highest since 2013. The haven has been favoured as the virus outbreak has spread beyond China, threatening a pandemic and slower growth.

Perhaps, the worst case scenario to the global economy could start to materialize and that is keeping gold prices bid because everyone is concerned that the virus is leading to low yields.

The weakening outlook for global growth is likely to put pressure on major central banks to provide monetary support, and the low interest rate environment may heighten the appeal of gold as authorities like the European Central Bank (ECB) rely on non-standard measures to support Euro area.

It remains to be seen if the ECB will venture into uncharted territory as the Governing Council remains reluctant to push the main refinance rate, the benchmark for borrowing costs, into negative territory.

Federal Reserve- the Federal Reserve is expected to enact more “insurance” rate cuts as it looks like the U.S. economy has been impacted by the coronavirus. The virus could have a more significant impact than the trade issues had on the economy last year.

Friday preliminary PMI data showed that sentiment in the U.S. service sector contracted for the first time in more than six years.

The market is finding it difficult to look further into the medium term due to uncertainty regarding what the virus will do to the global growth. There are beliefs that central banks may cut rates sooner than later. Lower interest rates reduce the opportunity cost of holding non-yielding bullion resulting in a push in gold prices.

Gold has marked the longest winning streak since June, with the price for bullion trading at its highest level since 2013, and the precious metal may continue to exhibit a bullish behaviour as market participants look for an alternative to fiat currencies.

Besides the safe-haven demand, a growing number of people are buying gold in anticipation of weaker growth from the spread of coronavirus and action from the Fed.

So far, economists have only snipped their expectations for the economic impact on the United States and the profits of American companies. But the sharp tumble in stocks — and more importantly bond yields — on Monday suggests investors are quickly moving beyond those relatively rosy views.

Prithviraj Kothari is the author of this article. Find more information about Prithviraj Kothari.

Thursday, 27 February 2020

Coronavirus Fears Continue To Impact Gold Prices
















Gold prices have rallied about 7% year to date. Gold was seen trading near $1,670 an ounce, on Monday 24th February; its highest level since early 2013, boosted in part by a flight to safety stemming from the spreading coronavirus.

Gold soared as much as 2.8% on Monday to its highest level in seven years, as investors worried about global economic growth in the face of sharply rising coronavirus cases outside China.

Spot gold was up 1.9% at $1,674.40 per ounce during Monday’s trading session. The session high, $1,688.66, was its highest since January 2013.

The rise in gold was close to three times the gains in the S&P 500 before the selloff on Monday, Feb. 24 — while bond yields are at or near historic lows in the U.S. and in negative territory in many other developed economies.

Rising concerns and fears over the virus have spooked the markets. And the fear is not only over the rising medical emergency but also the result that it will have on various economies.

Outside mainland China, the outbreak has spread to about 29 countries and territories, with a death toll of about two dozen, according to a Reuters tally. However, the rate of infection in China has eased.

The World Health Organization said it was worried about the growing number of cases without any clear link to China.

The missed work days in China may be equal to the entire U.S. work force taking a two-month unplanned break. The sheer size of this disruption is starting to be felt not only in China but also elsewhere, raising the risk of further short to medium-term pressure on growth-dependent commodities before demand eventually returns to boost prices.

There was a sharp rise in coronavirus cases reported in Italy, South Korea and Iran, with Afghanistan and Iraq reporting their first cases.

Investors view gold and other assets like government bonds and the U.S. dollar as safe havens during times of stress.

Investors’ fears over the virus outbreak triggered a wide sell-off in equity markets.  In Europe, markets had their biggest daily declines since mid-2016.

Concerns about the human and economic cost of the coronavirus continue to drive the need for strategic diversification and safe haven demand.

Gold is “a great hedge against market shocks and rising inflation” and is also a “great diversifier” in portfolios.

The yellow metal is a “great asset to add to more conservative portfolios and should ideally  take an equal but small pro-rata share from equity and bond allocations in those portfolios to end up with a 3% to 5% allocation to gold.

Gold is a “safe” investment with a “store of value” during tumultuous times like today, buffeted by geopolitical risks from Afghanistan, Iran, Iraq, Syria, North Korea and the U.K. (Brexit), uncertainty about the upcoming U.S. presidential election and, more recently, the spreading coronavirus.

At the same time gold is supported by strong demand for jewellery and central bank reserves, especially from emerging markets.

The news from Italy has taken coronavirus fears to the next worrying level of a global pandemic, potentially triggering significant stock market sell-offs, sending Gold above $1,800, and perhaps pushing the Federal Reserve to a rate cut in March.

We believe that the combination of additional rate cuts, increased stimulus, and negative US real yields – which reached a 7-year low at -0.15% - and increased worries about company earnings going forward, will continue to drive strategic diversification and safe haven demand.

Adding to this is the clear risk that the virus outbreak may have a longer and more profound impact.

Gold could be on the verge of a long-term super cycle if interest rates remain at historically low levels in the U.S. and around the world and the yellow metal breaks above the $1,888 high reached in 2011.

Prithviraj Kothari is the author of this article. Find more information about Prithviraj Kothari.

Wednesday, 26 February 2020

Coronavirus Gives Rush To Gold Prices
















Past six to eight months have been quit pleasing for fold. There are plenty of good reasons to be optimistic about gold’s prospects.

The global economy and the financial system are already stretched to a breaking point and Demand for precious metals is heating up. This, of course, is plain for all to see, even As mainstream investors and analysts still refuse to face facts and prefer to focus on naïve hopes of an eternal expansion.

If we look at these factors in detail we can see that these risks will be going forward and creating a more uncertain atmosphere for gold which will further push prices higher.

The massive policy U-turn by the Fed certainly played a part, and so did the move by the ECB to resume its own easing policies and monthly asset buying spree. We have officially returned to loose monetary policies across the board, and this provided a boost to precious metals until now.  Another important factor was the renewed interest in gold by institutional players, as demand from that side of the market also picked up significantly.

Bullion is rising at a time when U.S. stocks are at an all-time high even as traders weigh the global impact of the disease. While Hubei, the province at the centre of the outbreak, reported fewer cases after another revision to its counting method, there are signs of deepening economic damage. In addition, two deaths were reported in Iran, highlighting the threat outside China.

The coronavirus had a downward effect on most commodity prices. Since 20 January – the date of confirmation of human-to-human transmission – prices of energy and industrial metals have fallen significantly. The outbreak has grown exponentially since, and is expected to impact the global economy dramatically during Q1. But gold has rallied quite high compared to other metals.

The traditional haven has climbed more than 6% this year amid mounting concern over the effects of the virus, with companies from Apple Inc. to Burberry Group Plc cutting guidance. While minutes from the latest Fed meeting showed that officials indicated they could leave rates unchanged for many months, futures traders maintained expectations for at least one cut over 2020.

A market convinced that the Chinese slowdown will elicit further rate cuts in developed markets chose to ignore surprising rises in inflation in both the U.S. and U.K. earlier. U.S. factory gate prices rose 0.5%, taking the annual rate of producer price inflation to 2.1%, its highest since May, while the U.K. consumer price index rose more than expected to 1.8%, still below the Bank of England’s target but an upside surprise consistent with other strong data this week that have argued against further rate cut.

Gold traded near a seven-year high on concern that the coronavirus outbreak will retard global growth, coupled with speculation the Federal Reserve will ease monetary policy before the year-end.

In the domestic markets too, for the sixth consecutive day, gold prices touched life time high of Rs 41,636 per 10 grams in Mumbai's bullion market as demand for the safe-haven metal rose after Apple issued a warning that its sales would be impacted by coronavirus epidemic in China.

The rate of 10 grams, 22-carat gold in Mumbai was Rs 38,139 plus 3 percent GST, while that of 10 grams, 24-carat gold was Rs 41,636 plus GST.

Gold prices edged higher touching the $1,600 level as the death toll and the number of affected people due to the coronavirus outbreak continues to rise.

Warnings from Apple and HSBC that the epidemic was damaging their businesses lent support to the metal prices.

Gold prices hit a seven-year high on Wednesday as expectations of further monetary policy easing to cushion the economic impact of the Covid-19 outbreak.

Precious metals had to battle with a split-personality market, as demand for the ultimate haven asset was accompanied by a rebound in risk assets such as equities and oil. Bond yields, which normally fall when gold rises, rose by one to two basis points along the Treasury curve.

But given that China is already struggling with a huge corporate debt problem, some took the view that bailouts were likely to be followed by loan defaults and ever-greater problems with the Chinese financial system – a development that hardly makes havens like gold less attractive.

Support for the yellow metal is driven by economic uncertainty related to the coronavirus – i.e. how long could the pandemic last and what its ultimate impact will be on world economic grow.

Prithviraj Kothari is the author of this article. Find more information about Prithviraj Kothari.

Wednesday, 19 February 2020

Gold Remains Consolidated
















By the time we reached mid-week, gold prices were pushed slightly down due to labour reports, controlled situation of the corona virus and lower demand.

Gold prices edged lower on Tuesday and continue to trade sideways. The Labour Department reported on Tuesday that Job openings dropped in December to their lowest level in two years. Total vacancies now at 6.4 million, down from nearly 6.8 million in November. Wall Street estimates had been for about 6.9 million. Vacancies continued to decline in manufacturing with a 24% decline year-over-year. Overall, the hiring rate fell from 4.3% to 4%. The Job Openings and Labour Market Survey showed that total vacancies outnumber job seekers by nearly 700,000, down nearly by half from a few months ago.

Positive data released sent gold prices down.

Further, In the United States, Federal Reserve Chair Jerome Powell told Congress on Tuesday the U.S. economy is in a good place, but cited the potential threat from the epidemic and concerns about the economy's long-term health.

The corona virus epidemic continued to stifle activity in the physical gold markets in top bullion consumer China and Hong Kong this week, while demand was mixed in other Asian hubs. The death toll in mainland China reached 637 on Friday, with a total 31,211 cases, the World Health Organization chief said, while a Reuters tally showed 320 cases in 27 countries.

Gold was little changed on Wednesday, as equities rose after the number of new corona virus cases fell, while uncertainty over the economic impact of the outbreak underpinned bullion.

While the death toll exceeded 1,000, China's foremost medical adviser on the epidemic said infections may be over by April, with the number of new cases already declining in some places.

As the virus scare is fading out, gold seems to be on a consolidation phase.

But we still see support for gold as the negative knock-on effects of the virus are yet to be witnessed and further the cumulative impact of existing tariffs following the U.S.-China Phase 1 trade deal.

It’s quite possible that China might reduce the purchase of U.S farm products this year under the Phase 1 trade deal. The virus outbreak could further dampen the trade situation between these two countries.

Also keeping gold in check, the U.S. dollar stayed close to four-month highs after soaking up safe-haven flows as worries about the corona virus coincided with recent data showing the U.S. economy's strength.

Gold, which is often used as an insurance against economic risks, tends to appreciate on expectations of lower interest rates, which reduce the opportunity cost of holding non-yielding bullion.

Prithviraj Kothari is the author of this article. Find more information about Prithviraj Kothari.

Wednesday, 12 February 2020

Gold Soon To Be The Premier Asset
















Gold climbed for a fourth straight day as investors weighed the unfolding corona virus crisis, including a blunt warning from the head of the World Health Organization about the potential for more cases beyond China.

Prices rose as the global death toll from the outbreak topped 900 and the WHO Director-General Tedros Adhanom Ghebreyesus voiced concern over the spread from people with no travel history to China, saying “we may only be seeing the tip of the iceberg.” Beijing will spend at least $10 billion to fight the outbreak.

Bullion’s trading near the highest since 2013 as investors assess the impact of the disease on global growth and appetite for risk, although concerns over weaker physical demand for gold in China is capping gains. The effects of the virus have presented a “new risk” to the outlook, according to the Federal Reserve, and the issue will probably be front and centre when Chairman Jerome Powell kicks off two days of Congressional testimony on Tuesday.

We have been time and again talking about the corona virus, its effect on China and on the global economy as a whole and what are the possible consequences of the same. Well even though this virus is confined to mainland China, it’s having spill over effects globally.

The recent lockdown has deeply affected the international supply chains. It’s like shutdown down the world. So many companies rely on Chinese manufactured goods that this kind of disruption is bound to have a hugely negative effect on other countries’ economies.  Further an increasingly panicked global population may eschew any Chinese goods for fear that they may be tainted with the virus, however unlikely this may be.

Let’s have a look as to how this lockdown is affecting the other parts and various industries-

The scale of disruption in China is already staggering. Hyundai, the fifth-biggest global car maker, has been forced to close all its factories at home in Korea for lack of key components. Volkswagen, Toyota, General Motors and Tesla have all downed tools at their Chinese plants, as has Apple’s iPhone supplier Foxconn.
There were news that Fiat Chrysler in the U.S. may have to halt production due to a lack of component availability from the Chinese manufacturers on which it relies.
Reports suggest that as much as 90% of Chinese manufacturing exports have already been shut down as city after city goes into quarantine lockdown.  Many observers suspect, show over 40,000 confirmed cases of the virus and over 900 deaths so far and still rising.
Apart from China, cases if corona virus have been reported in Hong Kong and Macau too. So far over 130 confirmed cases in 24 countries and, thankfully, only 1 death but it is early days and this may well be the tip of the iceberg (Reported cases in the UK doubled to 8 this morning).

Markets have stated to realize the serous effects this virus will have on the financial markets. We are expecting a met-down in the equities markets. Major market led by  high-flying stocks like Apple and Tesla which both have heavy dependence on Chinese manufacturing to maintain earnings levels, will lead to a downturn in Asian and European equities markets. This might initially benefit gold and silver but they can turn down sharply as good assets are generally sold along weak side ones during a liquidity crisis.

Down the line we’d be nervous about all commodities including the major safe-haven precious metals.  China is the world’s largest gold consumer and demand there is sure to be disrupted and unless this can be replaced by increased demand in the West and from Central Banks we are going to see a demand downturn in any case.  Perhaps the timing is lucky in that new mined supply appears as if it may have peaked, while lower prices, if they materialise, will probably reduce recycled supplies and perhaps see a consumption pick-up in India where high gold prices are said to have adversely affected local demand.

In such uncertain times fold is usually the go-to asset.

During the recession and inflationary crisis of 1978-1980, gold skyrocketed again, jumping 29% in 1978, 120% in 1979, and 29% again in 1980. During the crash of 1987, gold jumped 24%.

Another gold rally struck from 2002 to 2003, just after the collapse of the Dot Com Bubble, rising over 40% as the U.S. went to war with both Afghanistan and Iraq. It was also around this time that central banks began amassing gold reserves once again, but primarily among eastern nations like China and Russia. This gold buying spree has only expanded in recent years, with banks buying more gold in 2018 than they have in over five decades.

The next major gold market rally, triggered from 2009 to 2012, is well remembered by most of us. Prices jumped around 70% total during the onset of the credit crash.

Again, because central banks are buying exponentially, and because the global economic system has been in a constant state of distress since the crash of 2008. Gold prices are not going to drop back to pre-crisis levels when our economy is perpetually unstable and none of the problems from 2008 have been fixed.

Gold rallied from $1,200 in September of 2018 to nearly $1,600 in the span of a year, and central banks are continuing to buy regardless of the price increases. They seem to know something that most of us only suspect.

With the historic trends displayed plainly here, it is easy to predict what will happen next.
The corona virus outbreak is about to be labelled an official pandemic.
The Fed’s repo market stimulus has failed to quell liquidity issues within the U.S. banking system
U.S. corporate debt and consumer debt is at all-time highs,
The UK has just left the European Union with a No Deal Brexit (as predicted)
The U.S. is initiating a troop build-up in the Middle East to surround Iran.

It was last during World War I that so many crises happened simultaneously. Not since World War I have we seen so many crisis events happening simultaneously.

It only makes sense that gold will once again become the premier asset for defending your savings.

Prithviraj Kothari is the author of this article. Find more information about Prithviraj Kothari.

Friday, 7 February 2020

Gold Demand May Rise Soon
















Gold has experienced resurgence as a reserve asset – central banks have become net buyers over the past 10 years, and their holdings have reached levels not seen since the 20th century. This has several origins, among them growing geopolitical tension between regional blocs; the swelling share of negative-yielding fixed income securities; and the emergence of possible challenger currencies to ‘king dollar’, which holds a more than 60% share in global foreign exchange holdings.

Currently, all eyes are on headlines about the virus, many central banks may be dovish—which lowers other currencies, even as the U.S. seems to be the most liquid and safest for capital. All this is temporarily leaving gold buyers to seek other trading opportunities for now.

Price losses for the metal had worsened in the wake of data released Monday that U.S. manufacturers grew their businesses in January for the first time in six months. The survey by the Institute for Supply Management rose to 50.9% last month to 47.8%. The moves for bullion come after the most-active April contract saw a weekly climb of 0.6%, and a rise of about 3.8% for the month. The settlement level also marked the highest weekly price finish since March 2013.

Gold futures on Monday posted their first loss in four sessions, with haven demand for the metal taking a hit as U.S. equities partially bounced back from a corona virus-triggered selloff, and the U.S. dollar and government bond yields rose.

However, the spread of corona virus around the world continues to dominate commodity markets. The energy sector remains the focal point of the selling, with crude oil under pressure.

China’s National Health Commission on Sunday said cases of the novel corona virus reached 17,205, while the death toll was more than 360. Cases also have been reported outside the country, with the World Health Organization and Trump administration last week declaring public health emergencies.

Gold continues to shine amid the turmoil. The safe-haven asset has seen strong demand over the past week as investors rotate out of risky asset classes. This has seen the gold price push towards USD1, 600/oz. Dovishness from the US Federal Reserve has helped. Chair Powell said the central bank is carefully monitoring the epidemic and its effects on the US economy.

We expect a lower U.S. dollar over time, and this is one of the major drivers of gold and silver prices. Second, as long as the amount of negative-yielding government bonds is substantial, precious metals and commodities are attractive to invest in (not negative-yielding). Third, major central banks will likely continue to support their economies, and higher official rates are nowhere on the horizon. Fourth, we expect some pick up in jewellery demand from China.

While we expect these events will continue to play a major role in determining precious metals prices in 2020, there are, of course, other variables to consider as well, particularly the underlying fundamentals of supply and demand.

What is more, the recent increase of unrest in the Middle East is slowly building in a premium in precious metals prices, first and foremost supporting gold and silver as a hedge against increases in systemic risks. The political rhetoric is surely heating up in Iran and Iraq following the US attack on a high military Iranian official and, together with the ongoing trade deal saga, these two events could well be the main catalyst for higher precious metals prices in 2020.

Gold has been going strong.  It has always been looked over as a hedge tool. Gold can provide a protection cover against systematic risks, stock market pullbacks, and recessions. It even lowers the risk in a portfolio and efficiently manages diversification.  It further provides liquidity to meet liabilities during times of market stress.

Research shows, an allocation to gold in a typical stock/bond portfolio has provided better returns than those with little or no gold. It also lowers your risk.

Portfolios that include gold have fallen less in bear markets and risen more in bull markets. The long-term value of a portfolio is clearly enhanced by including gold.

And with continued escalation and unrest, demand for gold is expected to rise further as markets will rush towards this safe haven asset which is further expected to push prices high.

Prithviraj Kothari is the author of this article. Find more information about Prithviraj Kothari.

Tuesday, 4 February 2020

Pre-Budget Views 2020
















There has been a steep decline in jewellery sales over 12 months, and jewellers are facing adverse impacts of the slowdown because of the increase in gold prices, and a slowing of the overall economy.  Moreover gold prices have sky rocketed over the past few months which has further dampened the demand.

At present, gold attracts an import duty of 12.5 percent and a GST of three percent.

This increase in customs duty for cut and polished coloured gemstone is the biggest hit. Additionally, the increase in import duty on gold has had a spill effect and made the grey market stronger. With these duties, it becomes difficult to compete in the world market and export, as China is a major competitor. In fact in the past few years China has overtaken India as the world’s largest consumer of gold.

The volatility in the markets has also pushed gold sales down. Even though safe haven demand is there but in the retail jewellery market, the sales haven’t picked up much.

In the run-up to the Union Budget speech on February 1, 2020, Indian micro, small, and medium enterprises (MSMEs) in the gold jewellery segment are feeling the impact of the decline in jewellery sales. The country saw demand for gold falter in the second half of 2019. Some factors for the decline include a rise in international prices (India imports most of its gold), hike in import duty from 10 percent to 12.5 percent, and liquidity crunch in the Indian economy. And, the Union Budget 2020 could go a long way in alleviating some of these concerns if it focuses on lowering import duty on gold.

Jewellers hope for the volatile market to settle down. They are expecting Union Budget 2020 to come up with good policies to bring stability and better phases in the jewellery industry as there is an immediate requirement to cut down custom duty and import duty charges.

Hoping that this year’s Budget will provide for a reduction in duty on imports of cut and polished diamonds. The gold and jewellery industry is going through one of its toughest phases. However, gold jewellery exports grew 21 percent from November 2018 to November 2019, according to the Gem & Jewellery Export Promotion Council (GJEPC) data.

The Union Budget 2020 is expected to provide for a reduction in the import duty on gold because there is an immediate need for a cut in customs duty.

A possible import duty cut on gold in the upcoming Budget could curb smuggling and boost sagging imports. Commerce Ministry has reportedly asked for a reduction in import duty on gold to boost exports and manufacturing in the gems and jewellery sector. Import duty on gold was increased from 10 to 12.5 percent in the previous Budget.

Despite what the Budget may hold for the segment, volume growth for jewellers is expected to increase on the back of reintroduction of low-cost gold metal loans and likely stabilisation of gold prices at lower levels.

Prithviraj Kothari is the author of this article. Find more information about Prithviraj Kothari.

Wednesday, 29 January 2020

Gold Is On The Move
















So far in 2020, the yellow metal has been the best market to trade. Buy the dip has been the best possible scenario. We still have that scenario playing out. Gold is on the move. Risk aversion is pushing up gold prices. Weekend news showed that (the corona virus) is still spreading in many countries across the globe and this could impact economic activity and market sentiment.

As concerns about the impact of corona virus mount, investors have boosted holdings in exchange-traded funds backed by gold to the highest since November, with the assets now less than 25 tons shy of a record. Adding to the momentum, the Federal Reserve is gearing up for its first rate-setting meeting this year, where it’s expected to maintain easy monetary policy, and the World Gold Council will offer its assessment of global demand trends.

Gold jumped 1% on Monday to a near three-week high as growing concerns that the corona virus outbreak could impact the global economy pushed investors to safe havens.

Spot gold was up 0.8% at $1,582.41 per ounce during Mondays trading hours; having earlier touched it’s highest since Jan. 8.

The widely spreading corona virus has prompted the Chinese authorities to introduce travel restrictions across 10 cities, affecting up to 40 million people according to some reports, in the middle of the country’s most important holiday season, the Lunar New Year. Even Shanghai's Disneyland, one of the country’s most popular tourist destinations, has been shut.

Fears of a global contagion from the corona virus has plummeted stock markets worldwide. There’s nothing like a global contagion to get gold buyers to pile back into the safe haven. The yellow metal hit two-week highs on Friday, creeping toward the $1,580-per-ounce level targeted by gold bugs on worldwide fears over the economic fallout to the China-originated corona virus.

The death toll from the corona virus outbreak has risen to 81 in China, with 2,744 confirmed cases, and the virus has spread to more than 10 countries, including the U.S. and France.

Despite the strength of the greenback, the bullion price is taking advantage of this uncertain situation.

Markets are focused on news around the deadly corona virus. There will clearly be a significant economic impact, centered in China. A key question is the time it will take for the virus to be contained and one can only speculate at this stage.

Investors will be watching the U.S. Federal Reserve’s first policy meeting of this year on Jan. 28-29, where it is widely expected to keep rates unchanged.

In recent years, high interest rates, risk aversion stemming from the downturn in global trade, and support from earnings repatriation have supported the US dollar.

But over the coming years, US growth and interest rates will be closer to those elsewhere in the world, and uncertainty ahead of the US election and the waning effect of tariffs suggest a weaker greenback is likely.

The Fed at its monetary policy meeting on Wednesday use the same kind of cautious language heard by the ECB and BOC, then that could be the rocket fuel gold needs to sustain gains above $1600 per oz.

Prithviraj Kothari is the author of this article. Find more information about Prithviraj Kothari.

Thursday, 23 January 2020

A Breakout In Gold Is Expected Soon
















The gold price rose by 39% from the low in 2018 to its peak this month, as it jumped on the news that the US had assassinated an Iranian general. The subsequent retreat in the gold price shows that individual events do not usually move the price for long. However, a number of factors have combined to encourage safe-haven purchases of gold. Increasing political and economic uncertainty, more monetary easing from the Federal Reserve, falling bond yields and huge quantities of negative yielding debt have all played a part.

This week too we saw gold being influenced by an array of events. Gold prices rose to their highest in more than a week on Monday, after a missile attack in Yemen over the weekend strengthened geopolitical concerns and boosted the metal’s safe-haven appeal, while buying ahead of the Chinese New Year also lent support.

Spot gold was up 0.3% at $1,560.89 per ounce during Mondays trading sessions, after touching its highest since Jan. 10 at $1,562.51 earlier in the session.

The market is also going up because of central bank buying, geopolitical risks such as Yemen missile attack - all these factors are supporting gold.

And since Gold is considered a safe investment in times of political and economic uncertainty, an encouraged buying of the yellow metal was witnessed.

Geopolitical tensions around the world have risen and further eroded the fundamental outlook which is already burdened with unusually-high uncertainty. Investors may therefore be particularly sensitive to comments from officials that have implications for monetary policy.

After the US and Iran stepped back from further confrontation, the gold price has given back some of the gains made following the US missile strike that killed an Iranian general. A more time-consuming correction is possible before gold attempts to reach new high.

We all know that a number of factors combined have resulted in safe haven purchases for the yellow metal; similarly, a number of factors will be the reason behind a rally in gold prices that is expected to happen soon.

TRADE TENSIONS- EU-US trade tensions may soon begin to escalate following a warning from the EU’s new trade chief Phil Hogan that the EU intends on retaliating with tariffs over WTO dispute with Boeing. Relations between Washington and Brussels have been put on the backburner, though it may become the new trade war of 2020. A revived cross-Atlantic trade tiff would further undermine global growth and may push gold prices higher.

COMPANY GAINS- A number of major corporations will be releasing their earnings this week, including giants such as Netflix and IBM. Despite equity markets reaching record-breaking highs, earnings reports are expected to be relatively flat. The worst-than-expected prints could make investors turn to the Fed in hopes that the poor data will make them more inclined to further ease credit conditions. Gold may rise on this far-reaching hope.

INDUSTRIAL DATA -A flow of PMI data from the US, France, Germany, Euro zone, UK and Australia will also be published this week which may reinforce slowdown fears and inflate easing bets. Gold prices may subsequently rise alongside demand for anti-fiat hedges. Given the fundamental risks laying ahead in 2020, the tepid stabilization in PMI may be less of a turning point and more a moment of calm before the prior trend resumes.

FED AND INFLATION- one of the US Federal Reserve’s two major goals is to maintain the inflation rate near 2%.  Because, you know, high inflation is bad. If the inflation rate went up to 4, 5, or 6%, suddenly a lot of people would find themselves in the poor house.  Basically inflation destroys savings because the purchasing power of the dollar you saved years ago is now greatly diminished.

History shows that gold prices rise to keep pace with inflation over time.  So if we move into a period of higher inflation, we can expect gold to go up.

Now, Gold traders will have to observe critical ranges for a breakout. If gold crosses $1563- $1565 then it will break out for big. So be tight, observe gold to take best advantage of the current situation and similarly in the local markets too it is expected cross Rs.40300 per 10g, whenever the breakout is witnessed.

Prithviraj Kothari is the author of this article. Find more information about Prithviraj Kothari.

Saturday, 18 January 2020

Commodities AS A Whole Had A Mostly Positive 2019
















Gold, meanwhile, had its best year since 2010, climbing as much as 18.31 percent. The yellow metal’s role as an exceptional store of value shined brightly in the second half of the year when the pool of negative-yielding debt around the world began to skyrocket, eventually topping out at around $17 trillion in August. On the news last week that Iran launched a counterstroke against U.S.-occupied military bases in Iraq, the safe haven briefly broke above $1,600 an ounce for the first time since April 2013.

In the past two decades, gold has helped investors limit market volatility and portfolio losses. Between 2000 and 2019, the precious metal’s average annual price was down in only four years. Put another way, gold was up on average in four out of every five years—a remarkable track record.

Last week gold prices surged to seven-year highs after Iran launched a missile strike near U.S. troops in Iraq. Since then, prices have retreated, settling around $1,550 an ounce level as upbeat risk sentiment not the market working against the precious metal.

Gold prices continued to slip on Tuesday with overall global risk appetite still on the up as the markets eye an interim trade deal between China and the United States due to be signed in Washington on Wednesday.

The US has also dropped its designation of China as currency manipulator, which has lightened the mood still further, with markets sensing that there’s some chance of broadly improved relations between the world’s two largest economies.

Gold rallied nearly 4% in December, mainly in the second half of the month, and recently moved to an intraday high of US$1,613/oz as the US-Iran confrontation unfolded. We believe there are a few likely reasons for the move:

A technical breakout

Bullish positioning in derivatives markets

Light trading volumes

Portfolio rebalancing at the end of 2019 especially as investors hedged risk asset allocations-

Federal Reserve (Fed) repo activity

Berenberg Cited several “volatile situations in the global geopolitical space” behind its higher forecast, notably ongoing US-China trade negotiations, the potential outcome of Brexit, rising tensions between the US and Iran and the US elections in November.

“It feels that there should be some form of resolution between the US and China over trade in the coming months, and further clarity on Brexit over the same time period; an easing of tensions is likely to weigh somewhat on gold…However, in the background, there remain elevated tensions between the US and the Middle East, and the escalation of tensions between the US and Iran (which have eased somewhat over the last two days) remains an upside risk for gold”, the bank said.

They added that the victory of a “hard left president” in the US elections such as Bernie Sanders or Elizabeth Warren is “likely” to result in stronger gold prices on the potential for radical changes to US government policy.

Meanwhile, Berenberg’s analysts also said it was likely the Federal Reserve will leave US interest rates unchanged until 2021, which they viewed as “supportive for gold” as the metal tends to suffer when interest rates rise.

They added that a pickup in US inflation could potentially provide scope for further interest rate cuts, which could push gold prices upwards.

Rebalancing ahead of 2020

We saw a pullback in investor demand for gold in November, as demonstrated by outflows in gold-backed ETFs and a reduction in COMEX net longs. This reversed in December, with net longs moving back near all-time highs and gold-backed ETF holdings reaching all-time highs.

Anecdotal evidence suggests that investors may be inclined to maintain exposure to risk-on assets such as stocks, but not without hedging their portfolios in preparation for potential pullbacks – especially given the high level of geopolitical and geo-economic risks that have been carried over from 2019 And data suggests that gold may be a recipient of some of this activity.

Fed repo activity

The Fed began reducing their balance sheet in 2018, but reversed this decision in the second half of 2019 In particular, they began regular repurchase (repo) market injections totalling nearly US$500bn in the fourth quarter. This activity has continued into 2020 and has been described by some market participants simply as another form of quantitative easing (QE) – often dubbed “QE light” – and causing some investors to worry about liquidity in the Treasury market as a whole. And, historically, expansions of QE have led to increases in the gold price.

Increased geopolitical risk-

Tensions in the Middle East, driven by the US-Iran confrontation, supported safe-haven flows, pushing the gold price to a six-year high. While a more conciliatory tone by President Trump has recently eased concerns and pushed the price down to the US$1,550/oz level, gold remains up by approx. 2.4% as of 9 January 2020.

Prithviraj Kothari is the author of this article. Find more information about Prithviraj Kothari.

Tuesday, 7 January 2020

Gold Welcomes 2020 With A Bang
















Since May, 2019 gold prices have been ticking high and it seems there is just no looking back. Last year gold prices were driven by recessionary indicators, economic volatility and geopolitical tensions.

Gold demonstrated impressive performance gaining over 17 percent in 2019 and continued to rally  on 31 December.

Major Eurasian nations, including Russia, China and India were seen boosting the yellow metals positions by acquiring and producing bullion.

Gold continued to rally in the current year too. It welcomed 2020 with a big bang. Gold was seen bouncing to fresh highs in a gap from $1551 to a high of $1587.93.

Last week we saw tensions escalating in the Middle East due to the killing of a leading Iranian commander in a US airstrike in Iraq. This brought about an elevation in gold prices following demand for this safe haven asset which is bound to benefit from this crisis.

The U.S.-ordered, and implemented, drone strike which killed Iran’s General Qasem Soleimani outside Baghdad Airport in Iraq had an immediately positive effect on the gold price.

The killing of General Soleimani, considered to be the second most important leader in Iran after Ayatollah Ali Khamenei, seems to have been nothing short of a U.S. state sanctioned assassination and will undoubtedly hugely increase tensions, and anti-American feelings in what is a hugely volatile part of the world.

The US drone strike which killed Major General Qassem Soleimani, head of the Quds Force, the Iranian Supreme Leader, Ayatollah Ali Khamenei, said harsh revenge awaited the (US) “criminals”. While US President Donald Trump said over the weekend, America is ready to strike 52 Iranian sites “very hard” if US assets are attacked.

Iran has promised severe revenge and looking from afar it would seem that the U.S. move is likely to increase the dangers for U.S. citizens and allies working in the Middle East and elsewhere in the world far more than any direct threats or actions from anti-American militants located anywhere.

Subsequently, the price of the yellow metal is holding in the $1,550s following a risk-off close on Friday in US benchmarks which moved back from their all-time peaks in response to Friday’s headlines.

This tense situation has come up suddenly. But what still remains in the basket for gold, that it really looks forward to as key influential factors-

If there is no Iranian response immediately apparent apart from rhetoric one suspects there will be a correction next week – a view supported by the performance of gold mining stocks on Friday which fell back despite the huge boost in the gold price.

It will be interesting to see whether demand picks up again in China and India this year, which could be key to gold price fundamentals, particularly if there is a slowdown in central bank and gold ETF purchases – not that we are expecting either to happen.

The U.S. and its economic progress will probably remain the principal gold price driver in 2020, and this is somewhat uncertain at the moment.

Government data tends to remain mixed and the price has been moving up and down accordingly.

Likewise perceived progress, or otherwise. In the U.S./China trade negotiations will likely be a factor too.  We do expect a Phase 1 accord to be signed in 10 day’s time which could be another negative for the gold price – that is until the realisation sets in that the principal differences between the world’s two leading economies remain as far apart as ever.

The U.S. Federal Reserve and its interest rate policies will also continue to be a price driver for gold, but unless it is seen as likely to diverge from its current cautious policy, and move interest rates up or down accordingly, the Fed may only have a relatively minor role to play as far as gold price influence is concerned in the year ahead.

The calendar year 2019 saw gold advancing 18 per cent — the highest return since CY2010, when it had generated a return of nearly 30 per cent. At this juncture, a break of 1590 opens risk to 1603 and 1632.

Comex gold is gaining its footings in past two years and from $1200 to 6 years high of $1565 that we saw in 2019. This was despite the fact that US and other global equities performed fairly good and hit life time highs. The bonds were also gaining similar tractions, with new geopolitical tensions like killing of the Iranian Commander Soleimani,  there could be a new risk premium opportunity for gold prices and may soon be seen surpassing CY2019 high of $1566 and headed towards $1600-$1625 initially. However this last $50 uptick in 2-3 sessions came from new buying from funds contouring new geo-political risks, so any easing will have an equal negative impact on gold prices.

Prithviraj Kothari is the author of this article. Find more information about Prithviraj Kothari.

Friday, 27 December 2019

Gold Outlook 2020
















Year 2019 is about to end on a positive note for the yellow metal. Its shine and lustre was maintained as it almost finished the year 13 percent higher. This rally was majorly influenced by central banks, a deterioration and slow growing global economy and escalating geopolitical tensions.

Furthermore, concerns surrounding the US Chinese trade dispute and falling global yields added fuel to the fire. This has occurred in spite of a 1.7% rally in the greenback. Gold reached a high of 1,556 in the first 11-months of 2019 but stalled in September as the Federal Reserve started to ease US short-term interest rates and economic growth started to stabilize.

The length of the trade war and its grinding impact on the U.S. economy even caused the U.S. Federal Reserve to alter its tightening plans. A year ago, the Fed was raising rates. This December, it’s expected to keep rates on hold after three consecutive rate cuts in July, September and October.

The combination of solid US jobs growth and the demand for riskier assets helped stabilize the US 10-year yield which capped the upward momentum in gold prices. Recently (the past 5-years) movements in gold prices and the US 10-year yield have been inversely correlated (moving in opposite directions).

We all know that this year gold has witness some great rallies. But all this doesn’t happen overnight. Gold has achieved this mark gradually. Let’s see how gold made its way here.

From 1987 until 1993 a gentle price downtrend occurred. Prices traded sideways from 1993 until 1996 and were in a downtrend from 1996 until 1999. Prices then traded sideways until 2001, and then embarked upon a powerful 10-year uptrend that produced an all-time high of $1,908.60 in 2011. And then from 2011 until 2015 prices trended solidly lower.

Since 2015 gold prices have been trending up, but in choppy fashion. The monthly gold chart at present is overall technically bullish. That suggests the outlook for gold in the coming New Year is for more of the same—trending sideways to higher in the coming months.

Gold traded lower until May as optimism over a trade deal drove investors into higher-yielding assets. At the same time, the Fed was hawkish although policymakers were divided over whether to continue to raise or hold rates steady.

Gold put in its low for the year in May after the U.S. and China called off trade talks. Risk aversion increased globally as fears of world recession resurfaced amid disappointing macro data in major economies. Equity markets sank worldwide and U.S. Treasury yields dipped to multi-year lows as investor sentiment soured over growing global growth worries.

Gold may have bottomed in May, but its most impressive price move took place during August and September. This was shortly after the Fed made its first of three rate cuts on July 30.

Fear of a recession also helped spike gold prices higher as Treasury yields inverted. However, the move proved to be speculative in nature as the Fed continued to insist the economy was not headed toward recession and its rate cuts were just a “mid-cycle” policy adjustment. It was at this time that the Fed started to talk about limiting its easing to 1 or 2 more rate cuts.

Gold hit its high for the year after the Fed started to talk about easing up on its rate cuts, and the U.S. and China decided to move back to the negotiation table. It’s likely to trade sideways to lower over the near-term as long as the trade talks continue and the Fed holds rates steady.

Expectations of at least three rate cuts and a summer of trade war uncertainty fuelled a four month rally in gold in 2019. With the Fed expected to hold rates steady and the U.S. and China still negotiating, gold may be underpinned over the near-term, but there is no urgency to buy it
When we talk about outlook for any asset, the market always gets divided into two sections- the bulls and the bears.

Let’s take a look as to how each section continues to justify its belief-

THE BEARS BANDWAGON

For the bearish sentiment followers, it is difficult to predict a high sustainable growth for gold. From the recent speeches addressed by Fed Chairman Powell, it can be stated that the Federal Reserve is on hold. The Fed has made it clear that the hurdle rate for additional rate cuts is larger than it has been earlier in the autumn

With the Fed likely on hold, any positive US economic data will continue to lift the 10-year yield which should put downward pressure on gold prices. Additionally, if global growth begins to stabilize and Europe and Asia begin to experience economic expansion, global yields will begin to rise, weighing on gold prices.

Not forgetting to mention the US/Chinese trade negotiations. As of late November 2019, it appears that the US and China are moving closer to a phase 1 deal. While this might spill over into 2020, the deal would reflect a further easing of tensions and the removal of trade tariffs between the two largest economic powers globally.

If there is any positive achievement in trade dispute then gold is likely to head lower, back towards $1300.

THE BULLS BELIEVERS

A lot has changed as a consequence of the United Kingdom was voted in the favour of Brexit on June 23 including a change in gold prices. Gold has surged by 6.5% ever since the Brexit decision, gold has only been climbing higher by each day. And the spill over effect will be witnessed in 2020 too as believed by the bullish supporters for gold. But for this to be true there will be three major catalysts that will play a very important role in pushing gold prices up-

A weakening global economy- Whenever the global economy faces a crisis, gold prices always benefit. The post Brexit economy uncertainties will definitely continue for a while, thus helping gold prices climb higher. A lot of investors and economists have raised questions about the next country to drop out of the European Union ever since the United Kingdom left the European Union. There are talks that the European Union might actually completely dismantle over the next couple of years. The geopolitical uncertainty will definitely send investors rushing to invest in gold.

Rate Cuts- It is a fact that rate cuts lower the value of a currency. When the value of a currency decreases, gold tends to look more appealing as a store of value. ECB has reduced interest rates by -0.4% and there are indications of further rate cuts. And there has been some gossip about UK rate cuts ever since Brexit. Rate cuts, big or small will definitely aid gold prices in climbing higher this year.

Discounted gold- It is evident that gold is trading at quite a discount right now considering the Dow/gold ratio. The Dow/gold ratio can be arrived at by dividing the Dow index by the price of gold. The current ratio of 13.3 is proof that gold is trading at a good discount. Gold will continue trading at a much higher premium in the next few years. The demand for gold is rising in the Asian countries and will continue to do so in the next couple of years.

If the above mentioned catalysts move the way they are supposed to, then gold can show some real bold price movements in 2020.

Prithviraj Kothari is the author of this article. Find more information about Prithviraj Kothari.

Monday, 23 December 2019

Gold 2019- A Quick Look Back
















It’s time to look back. 2019 was a great year for gold. Just when the global markets had started writing off gold in 2018, it once again proved its safe haven appeal in the current year.

he third quarter of 2019 was eventful for the gold sector, with two interest rate cuts from the US Federal Reserve, a price rally and subsequent pullback and lots of speculation.

GOLD remained one of the most trusted asset classes the world over. The precious metal was up 15% in value until 3rd week of December.

Brexit,  geo-political tensions, Global uncertainty and US-China trade tensions kept investors worried about rising uncertainty, thus benefitting gold prices which further kept the gold prices well bid in CY2019.

Central banks- In 2018 central banks bought the most gold ever recorded and these robust purchases continued year to date in 2019. Central Bankers across the world kept buying gold, underlining the possibility of tough times in the near future. In the first three quarters, they bought 547 tonnes of gold, which was 12 per cent more than in the previous year

Trade dispute- The year started with the continuation in the trade tensions between the US and China. The first phase of the trade deal did not go through. Trade wars between two major economies of the world, kept pushing gold prices high.

As the Fed shapes US monetary policy, it influences significantly the macroeconomic environment and thus also the gold market. The link between the US central bank and the yellow metal is manifold. First of all the Fed set the federal funds rate which affects short term interest rate and indirectly ht whole structure of interest rates in the economy. Hence when the Fed tightens its monetary policy, interest rates rise. Then they increase faster than inflation, real interest rates go up which is negative for gold, a non-yield-bearing asset. On the contrary, when the Fed eases its monetary policy, interest rates decline. When they decrease faster than inflation, real interest rates go down which is positive for the yellow metal. And this was clearly visible in 2019.

Brexit- Economic uncertainty in the European Union continues to drive safe haven gold investment in Europe after a failed referendum on EU-Ukraine trade relations. Concern over Great Britain’s upcoming referendum on EU membership (set to take place in June) is also straining the markets. If the Brexit were to occur, it would likely spell the eventual demise of the European Union as an institution and set a prerogative for further member state exits. The Fed announced that the implications of a Brexit would be discussed at length in its next meeting. You may have already heard about the Brexit, but if you have not, now you have. This should continue to build momentum in the news as we approach June 23rd. This date is significant because it is the day the referendum will be held to vote whether Great Britain stays or exits the EU, hence the portmanteau “Brexit”.

Slow global growth- Global growth weakened considerably in 2019, falling from 3.2% in 2018 to of 2.6; the main culprits, the trade wars and weakening growth in China. In response, many central banks began to loosen monetary policy thus proving to be positive for gold.

Increasing gold prices compelled investors to add gold to their portfolio. Gold-backed ETF holdings also reached all-time highs by October as investors responded to the high-risk, low rate environment.

As we look ahead to 2020 we believe investors will face an increasing set of geopolitical concerns, while many pre-existing ones will likely be pushed back rather than being resolved. In addition, the very low level of interest rates worldwide will likely keep stock prices high and valuations at extreme levels. Within this context, we believe there are clear reasons for higher levels of safe-haven assets like gold. Geopolitical volatility will continue to be part of the background of general uncertainty that has been very favourable to gold for several years now.

There is plenty of support for gold in 2020 and the yellow metal might embark on a long-term sustainable rally in a new era of uncertainty. Gold prices are expected to trade in a range, between $1,450 and $1,600 an ounce next year.

Prithviraj Kothari is author of this article. Find more information about Prithviraj kothari.

Monday, 9 December 2019

Fresh Breakout Levels For Gold
















Precious metal prices have had a very strong year

Gold rose substantially above our year-end forecasts of USD 1,400 an ounce.

Gold prices were supported by a general shift in monetary policy of major central banks from tightening to a new round of easing, a decline in government bond yields, an increase in the amount of negative yielding government bonds, weakness in the Chinese Yuan, uncertainty on global growth and global trade front, and Brexit uncertainty.

The majorly influential factor for the yellow metal was the US China trade dispute. Almost the entire calendar year of 2019 stretched over this news for the global financial markets.

But this week we saw so many twists and turns regarding this matter.

First Trump entered in the fray. He dumped US China trade deal and said that it will happen only post US election in October 2020. The biggest losers over this news were DOW and US 10y and obviously the gold prices rallied and crossed$1475 which happened nearly after 4-5 weeks. (inversely proportional to the dollar)

But this was just not enough, when we saw a real example being set in the books of history at least pertaining to US china trade deal. On one side there was news that any trade dispute development will happen only after October/November 2020, while on the other hand there were news in the market on Wednesday that a US China trade deal will happen soon.

This uncertain news created a much ascertained volatility in the precious metals markets. This move is further expected to boost gold traders again fro lows. Once we saw the worst 1 decade monthly ADP jobs data reported at 67k a day. So its tight rope for these $1475-$1480 bracket on recent gold breakout. Once see a departure and sink below $1470 this will be extremely negative for the gold prices. However, till it survives $1470 broadly it’s headed for $1495-$1500.

In Prithviraj Kothari's opinion, Gold is expected to rally above $1480 and silver above $17.20. These can be considered fresh breakout levels.

We expect the US dollar to weaken modestly because of deterioration in longer-term fundamentals and weakness in near-term cyclical dynamics. Gold tends to rally when the dollar declines and we think this relationship will hold in the coming years.

Precious metal prices have rallied strongly. Long term outlook for gold is positive. But wait for a correction to position for higher prices.

Friday, 6 December 2019

Gold Remains RE-Committed
















Gold has risen more than 13% this year mainly due to the trade dispute driving demand for safe assets

The policy U-turn by central banks suggests they do not have full command over the global economic situation. This, alongside an unpredictable White House, the rise of populism, de-globalisation, de- dollarization and questions over the future of capitalism itself, have led to a feeling of instability from which gold has certainly benefited.

But in these uncertain times, gold has once again proved its worth. It appears that gold has been one such haven investment and investors will also agree to this. Where on one hand the FTSE 100 index gained just 2%   over the past 12 months to mid October, on the other hand gold has gained 21% in the same time frame.

The recent strength comes after a wobbly few years for gold, which have seen it struggle to break above $1,350. Its rise coincides neatly with 2019’s falls in US interest rates.

In Prithviraj Kothari's opinion, After the thanksgiving note, there was a good positive opening mostly in Asian markets as China indicated that they are still in the fray of a deal with the US for this phase, deal to happen so beginning of the month is full of data pack from US and EU.

Further, there was a tense kind of situation in the EU wherein countries demanded their gold back.

Just a few short days after Poland’s government touted its economic might after completing the repatriation of 100 tons of the barbarous relic; and with Hungary's anti-immigrant Prime Minister Viktor Orban also ramping up holdings of the safe-haven asset to boost the security of his reserves; more Eastern European nationalist leaders are demanding their country's gold back on home soil.

The various leaders have a recent example to prove their fears right as the Bank of England refused to return Venezuela’s gold stock over political differences.

In spite of the geopolitical issues, gold price fell on Monday as investors turned to riskier assets on signs of economic growth following reports of an expanding Chinese factory sector and as a rising dollar reduced demand.

Spot gold was down 0.5% at $1,456.70 per ounce by during Mondays’ trading hours, having earlier touched it’s highest since Nov. 22. U.S.

Positive data released from the Chinese markets, unexpected expansion numbers in factory activities during November, led to a spur of investor in the equity markets as further positive releases were expected from other countries.

Any positive data released, creates optimism in the market thus giving confidence to investors who then move to riskier assets which in reduce the safe haven demand for the yellow metal.

Investor demand for gold was further pressured by the rising dollar, which makes dollar-denominated gold more expensive for buyers using other currencies.

Trade dispute between the United States and China has supported gold, with reports that a preliminary agreement has now stalled because of U.S. legislation supporting protesters in Hong Kong and Chinese demands that the United States roll back its tariffs as part of phase one deal.

Nonetheless, Gold has been the star performer of 2019, but does the gold rush have further to run?

The basics are still quite supportive, this lull is not going to last too much longer. Maybe into yearend we will see gold prices recommit the uptrend and is expected to trade between $1,450-$1,500.

Tuesday, 3 December 2019

Gold Expected To Bounce
















November wasn’t a great month for the yellow metal as prices were down almost 4%. This was the biggest drop seen since November 2016. This decline was seen following positive news about a deal between Beijing and Washington which further weakened demand for the safe-haven metal.

Hopes for an interim U.S.-China trade deal buoyed demand for riskier assets.

There was not much clarity as to where will these trade talks lead to, hence the volatility was reflected in the trading prices.

Dampening gold prices pushed the dollar prices high as both are inversely proportional.

U.S. President Donald Trump on Wednesday signed into law congressional legislation backing protesters in Hong Kong, prompting Beijing to warn of “firm countermeasures”.

The Hong Kong protest went uglier as the reports suggest, thus souring the mood and thereof on their indices. Friday being half session, the US and data flow once again big here are few warnings from economists when they say that Hong Kong is the biggest political risk for financial markets. Today there is rupee traction on the weaker side.

Gold considered a safe store of the value during economic or political uncertainties, has gained more than 13% this year, mainly due to the tariff dispute.

But this week gold once failed to make headway through USD $1,460 - $1,465 on Wednesday, sold lower on trade headlines and strong U.S. data. It was generally one-way traffic throughout the session, as the yellow metal skewed offered in Asia, before accelerating declines in Europe/U.S. hours.

If the yellow metal crosses the $1500 an ounce mark then there is further potential for a price rise. But if it breaks below $1445 then a significant correction is expected which will result in further losses for gold prices.

A break above $1,500/oz would suggest the potential for additional upside in prices. In contrast, a break below $1,445/oz would point to a more significant correction underway, and we would expect further losses for gold prices.

Gold seems to be under pressure though it may hit the lower side target near 37500 and should give little bounce towards $1470 in the international markets where traders can sell for moderate gains.

In Prithviraj Kothari's opinion, Gold seems to be under pressure though it may hit the lower side target near 37500 and should give little bounce towards $1470 in the international markets where traders can sell for moderate gains.