Gold benefits from equity slide

Reserves Reserves Reserves - it was all about piling up gold in the past week. And when I Say piling I mean in huge numbers.

Peoples Bank China shocked the world when it’s released the figures of gold reserves that it sits on.  China's gold reserves had been steady at 59.240 million fine troy ounces from October 2016 to November 2018, according to data from the People’s Bank of China, and suddenly jumped to 59.560 million fine troy ounces at end-December.

The People’s Bank of China increased holdings to 59.56 million ounces by the end of December, or about 1,853 metric tons, from 59.24 million ounces previously, according to data on the central bank’s website. They had been unchanged since about 130,000 ounces were added in October 2016.
China has long been wanting to reduce its dependency on the US dollar. The ongoing trade war is threatening its economic growth.

Several large emerging economies, which today fuel most of global growth prospects, and major oil exporters, are intrigued by the idea of re-coupling gold with a multilateral currency basket to avoid excessive exposure to US dollar-denominated energy and commodity markets.

 Spot gold had its strongest month in almost two years as those fears spurred a whirlpool in equities and the dollar and boosted demand for the precious metal as a haven. And hence the world’s biggest producer and consumer boosted holdings of bullion.

But it was not an overnight thing. China has been piling reserves since quite some time. It had last released the figures in 2016 and now suddenly. And it’s not just China that has been doing this.  As Bloomberg reports, Poland and Hungary surprised the market in 2018 by adding to their gold holdings for the first time in many years.

Furthermore, there have been interesting shifts in gold reserves. While advanced economies, such as the US and Germany, still own most global gold reserves, the US has increased its gold holdings in the past decade only marginally, while Germany has been forced to cut its reserves. In contrast, China has tripled its reserves, while Russia has nearly quintupled its gold (after dumping billions of US Treasuries), despite rounds of sanctions.

Fresh comments coming in from Federal Reserve Chairman Jerome Powell on Friday, got in a fresh rally in gold prices. The statements released boosted the chances that the central bank will pause interest-rate increases. Speculation that the Federal Reserve may pause its interest rate hikes has given further strength to gold’s rally into the new year and assets in bullion-backed exchange-traded funds are at a seven-month high. Spot gold was trading 0.5 percent higher at $1,291.83 an ounce as the week ended. Strengthening of the yellow metal has further weakened the greenback.

Gold was out of favour for much of 2018 as a result of the strong dollar and interest rate increases in the US. The precious metal traded as low as $1,174 an ounce in August, despite rising geopolitical tensions.

However, sentiment began to improve towards the end of the year, as volatility increased further and US stocks suffered.

THOSE analysts who believe that fear has made a comeback argue that gold is benefiting as equities slide and investors are increasingly concerned about the economic prospects of the United States (US), China, Europe and Japan. Yet, even at $1,290, gold still remains more than 30 percent behind its all-time high of $1,898 in September 2011 amid the US debt-limit crisis.

December likely to be more volatile

Just when gold had become investor’s favorites, it started losing sheen. Friday, Gold closed at a one-week low amid investors shifting to riskier assets on the back of a higher dollar and the Federal Reserve's policy statement.

Gold eased to a one-week low on Thursday, as a recovery in the dollar and improved appetite for riskier assets pushed investors away from bullion.

Spot gold fell 0.13 percent to $1,224.09 per ounce, after touching its lowest since Nov. 1 at $1,219.59 Just when gold had become investor’s favorites, it started losing sheen. Friday, Gold closed at a one-week low amid investors shifting to riskier assets on the back of a higher dollar and the Federal Reserve's policy statement.

Gold eased to a one-week low on Thursday, as a recovery in the dollar and improved appetite for riskier assets pushed investors away from bullion.

Spot gold fell 0.13 percent to $1,224.09 per ounce, after touching its lowest since Nov. 1 at $1,219.59 earlier during the day.

Gold prices fell to their lowest in a week on Friday, and were set for their biggest weekly fall since August, on a firmer dollar as the U.S. Federal Reserve indicated they will continue to raise interest rates, lowering demand for bullion.

In the past fortnight we saw the dollar going week on the belief that losses for U.S. President Donald Trump's Republican Party in the midterm elections would make further fiscal stimulus measures unlikely.

But it didn’t take too long for the dollar to get back into action. The dollar has mounted a significant rally. Many reasons were cited for this bounce back-

• The Fed kept interest rates steady on Thursday
• It reaffirmed its monetary tightening stance.
• Robust U.S. economy kept the currency underpinned
• Investors positioned for a Federal Reserve interest rate rise next month
• Political risks in Europe put pressure on the euro and the pound.
• Fears about a no-deal Brexit gave dollar the push
• Growing rift in Europe over Italy's budget
• Reload of long dollar positions by investors
• Vulnerability of European currencies
• Weakening of the Euro over concerns about Rome's tussle with the European Commission over its 2019 budget
• Weakness in Italy's banking sector
• The melancholy in Europe has been good news for dollar
• Easing of China-U.S. trade tensions
• Weak China data
• Weakening euro zone economy is expected to trigger further euro-selling pressure.


All these factors clubbed together strengthened the dollar and hence the dollar rallied to a 16-month high on Monday.

The dollar extended its recovery following a sigh of relief across markets after the U.S. midterm election results, and as investors turned their attention towards the Fed.

Gold has always been keeping a watch on the dollar and moving accordingly. Currently too it is dollar-watching and keeping an eye on the interest rate decisions. Gold has come under pressure because of a stronger dollar. Also the FOMC meeting showed no change in the interest rates. Gold might turn to the bears as any news that is positive for the U.S. dollar and the U.S economy as a whole will bring about a fall in the yellow metal and push prices down.

A lot is expected to happen by the end of year and these activities will sure create volatility on a global level. Ongoing trade disputes. Escalating Saudi- Arabian tensions and Brexit are all in line to occur. December is likely to be more volatile and hence a lot is expected to happen as we get closer to end the year.

Gold expected to end the year on a positive note

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

No major catalysts for gold

Gold prices were hit strongly towards the end of the week. By mid Friday, gold was down -1.89% so far on the day and -2.35% from the high set just ahead of Thursday’s ECB rate decision.

While Gold prices held support fairly well through the Fed’s rate hike on Wednesday, the ECB meeting the following morning produced considerable US Dollar strength as the ECB announced stimulus-taper in a very dovish manner.

Gold prices drifted down on Friday on profit-taking after the dollar hit a seven-month peak and the metal failed to find support despite fresh trade skirmishes between the United States and China.

US-China trade "has been very unfair, for a very long time," said President Donald Trump, raising import tariffs to 25% on 1,100 different aerospace, robotics and auto-industry goods and spurring analyst and newspaper claims of a full-blown 'trade war'.

Gold priced in Dollars headed for a weekly loss of $9 per ounce while silver trimmed its gain from last Friday's finish to 1.0%.

Gold briefly touched a one-month peak on Thursday after the European Central Bank said it would hold off on interest rate hikes. But an accompanying surge in the dollar knocked it back.

The dollar has been witnessing some great strengthening powers and that was largely held on to last week.

While the yellow metal is stuck in a range on either side of $1,300 with no major catalyst to break out on either side."

Spot gold was down 0.7 percent at $1,292.51 per ounce at 1300 GMT, after reaching its highest since May 15 at $1,309.30 an ounce on Thursday

Gold deepened losses after President Donald Trump on Friday announced that the United States will implement a 25 percent tariff on $50 billion of goods from China and Beijing quickly said it would hit back with its own tariffs.

Analysts had expected gold to be bolstered by the prospects of a trade war.

The International Monetary Fund said on Thursday that Trump's new tariffs threatened to undermine the global trading system, would prompt retaliation by other countries and damaged the U.S. economy.

Global and U.S. equities failed to revisit their record highs despite some strong first-quarter profit reports, stoking fears of a correction.


On the other hand, as rate expectations out of Europe fell, the Dollar ran-higher and this provided a bit of pressure to Gold prices through the latter-portion of Thursday’s trade. It was shortly after the US open this morning that the selling really got underway, however, and Gold fell down to a fresh 2018 low, finding a bit of support just north of $1,275.

The US Dollar put in a considerable move of strength on the back of that ECB rate decision, and prices ran all the way up to the October, 2017 high before starting to pull back ahead of this week’s close.

This week’s economic calendar is noticeably light on US data, and the more interesting items are coming from rate decisions in Switzerland and the UK on Thursday of this week; so this appears to be an opportune time to evaluate the continuation potential of USD strength, and whether or not we can perch up to fresh 11-month highs.

This is relevant to Gold prices as the two themes appear to be connected, even if the timing is a bit off. The heavy selling in Gold took place on Friday after the US opened for the day, and the Dollar had already started to pullback from resistance. So, while it appears that there is some obvious connection here, there may be another factor at work as Gold prices displayed a delayed reaction to a rather sizable move of US Dollar strength.

BREXIT – Unity of Europe challenged: RSBL

- Prithviraj Kothari, MD RSBL

Clearly FED dominated first quarter of 2016 with respect to price movements in precious metals market and specially Gold. Moving here, there are lot of key events that could be considered game changing for Gold and Silver prices.

The June FOMC left the borrowing rates target unchanged while St. Louis Fed president James Bullard said the U.S. economy might need only one interest rate increase through 2018. The Fed's actual pace of rate increases has been much slower than what was mapped out by the committee in the past. This mismatch between what they are saying and what they are doing is arguably causing distortions in global financial markets, causing unnecessary confusion over future Fed policy, and eroding credibility of the FOMC.

Gold prices endured an extremely volatile session last Friday after Thursdays aggressive wash-out, grinding its way higher throughout the European and U.S. days to close out the week on a positive note (+1.6% higher for the week).

The Bank of Japan also did nothing to reassure the markets with a "shock and awe" monetary ease, impotent to act on the eve of Brexit and the upper house Japanese Diet election.

Everyone has been talking of the Brexit and as to how it will affect Gold prices. Those concerns were echoed by policymakers around the world last week. The Bank of England called the referendum the largest immediate risk facing U.K. financial markets, and possibly also global financial markets. Lets have a look as to what exactly Brexit is and how will it affect the financial markets and more importantly what effect it can have on the yellow metal.

WHAT IS BREXIT:

 International policymakers are ramping up their warnings on the dangers of a British exit - popularly known as "Brexit" — from the political and economic alliance that has united Europe for the past four decades. Voters in Britain will decide whether to leave or remain in the European Union in a referendum on Thursday, but financial market volatility has already spiked as polls show a growing desire to abandon the partnership. 

HOW WILL IT AFFECT UK:

The International Monetary Fund on Friday issued one of the direst forecasts to date, calling the impact of Britain's departure from the European Union "negative and substantial." The fund predicted that a Brexit could reduce economic growth by up to 5.6 percent over the next three years in its worst-case scenario. The gloomy outlook is driven by an expected sharp decline in the pound and severe disruptions in trade as the nation is forced to renegotiate deals with countries across the continent, potentially on worse terms.

HOW IT WILL AFFECT GOLD:

Gold is the obvious beneficiary of a dovish Fed, negative interest rates in Germany and Japan and the safe-haven bid to hedge Brexit risk.If Brexit happens then we may see gold trade at $1350 an ounce in the days to come. If Britain does not vote to leave the EU, gold prices could fall to $1220 as an immediate liquidation move.

If Britain leaves EU, the other states would also look for this option and the idea of unified Europe would fail. The challenges are coming at an already weak moment for Europe's economy — and the world's. Europe is still recovering from the series of financial crises that have been roiling countries such as Greece and Italy along with others across the continent. Waves of refugees from the Middle East are spurring political and cultural unrest.

In short, A Brexit would be bad for the U.K., it would be bad for Europe, and it would be bad for the world, and will further add to the current global uncertainties thus sending shockwaves through all financial markets but a positive for safe haven status of Gold.

Thank You!

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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 –

Gold prices Rise: RSBL - http://riddisiddhibullionsltd.blogspot.in/2016/06/gold-prices-rise-rsbl.html

GOLD ONCE AGAIN SURRENDERS IN FRONT OF THE DOLLAR

by Mr. Prithviraj Kothari, MD, RSBL

Firstly, on behalf of RSBL, I would like to wish you a very Happy and Prosperous New Year. We hope that this new Hindu Year brings in optimism in your life along with the precious metals market industry, other investment assets and the world economy.

Gold prices reached to three session highs by Monday lunchtime in London. Gold prices touched $1246 an ounce which is considered to be a crucial trading range for gold. Thanks to last week stock rally, gold prices gained as European stock markets reversed half of Friday's big bounce.

Let's have a look at some market making news that happened over the week:

• The U.S. dollar is up  5 % this year against a basket of 10 leading currencies. 
• The country’s unemployment rate is at a six-year low, suggesting the world’s biggest economy will survive slowdowns in Europe and ⦁ Asia. 
• The European Central Bank plans to stimulate growth by buying asset-backed debt, aimed at boosting the ECB's own balance-sheet by €1 trillion in a bid to avoid deflation for the 18-nation currency zone through monetary stimulus.
• Economists cut estimates for Chinese growth after disappointing data on industrial profits, factory output and credit. Chinese central bank will inject short-term loans into major banks this week drove Beijing's 1-year money market rate down to 2.99% – its lowest level in 25 months .
• The global economy was further threatened over the spreading Ebola virus threatens the global economy further.

Gold prices recovered on Thursday, and was seen trading around $1232-$1233. Post the US data release, investors once again were confused between gold and equities as the dollar rose and safe haven demand for gold declined. Gold prices fell to a one-week low at $1232.55 per ounce on Friday in London as safe haven demand was eroded after a rebound in US equities and a strengthening dollar.

Even when the US economy is showing signs of strengthening, Investors have plenty to be concerned about: Russian-inspired insurrection in Ukraine, Occupy Central protests in Hong Kong, the spread of Ebola from Africa to Europe and the U.S., war in the Middle. One thing they can leave off the list: inflation.

Whereas FED shall ponder on the below 2 points:

1) QE (Quantitative Easing): The Fed has bought $3.95 trillion of securities since 2008, a program called quantitative easing, or QE. The Fed official are worried about prices remaining too low as the cash that is currently there in the financial system has raised worries about incipient inflation.

The Fed’s bond-buying program, which the central bank plans to end this month, appears to have succeeded in stimulating the economy without debasing the currency because banks are holding onto reserves instead of lending. Falling prices, or deflation, can create a vicious circle of less spending and declining wages.

2) Consumer Spending: Low wages and low spending on consumer products will also keep a lid on inflation.

This was a snapshot of the world scenario. 

But where domestic markets are concerned, this year too gold sales shot up during the 5 day festive season. Tuesday being Dhanteras, gold demand was quite high as it is considered auspicious to buy gold on this day. Gold purchases in India gathered pace since Tuesday as consumers took advantage of a year-on-year drop in the price of the metal at the most-auspicious time to buy it. The prices seem to have dropped at the right time and markets saw people rush to buy gold at dips.

Now the international and domestic markets will have their eyes glued on the Fed policy makers meet scheduled on October 28-29.

TRADE RANGE

METAL	INTERNATIONAL Gold/Silver price range	DOMESTIC  Gold/Silver price range
GOLD	$1208- $1247 an ounce	Rs. 26,750- Rs. 27,800 per 10gm
SILVER	$16.85- $17.64 an ounce	Rs. 38,000- Rs.40,000 per kg

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 - "Gold Tend to Move Side-Ways"

http://riddisiddhibullionsltd.blogspot.in/2014/10/gold-tend-to-move-side-ways.html

GOLD TEND TO MOVE SIDE-WAYS

by Mr. Prithviraj Kothari, MD, RSBL

As we just thought gold was acting positive and making a comeback, it proves us wrong by the end of Friday.

Gold erased this year’s gains earlier this month on the outlook for higher borrowing costs as the U.S. economy improves. Bullion has since rebounded as the Fed signalled a worldwide economic slowdown may delay interest-rate increases and as equities to commodities slid.

The week was decent enough for gold in the domestic markets, but then internationally showed a sideways performance.

Internationally, gold prices declined after the U.S data reports were in. The better than expected consumer sentiment data lowered gold's safe haven appeal while on the other hand the ongoing concerns over global economic growth and a recovery in global stock markets gave the yellow-metal some support.

Equities and bond yields dropped sharply and the uncertainty over the Fed's hike in interest rates have changed the sentiment for gold from bearish to neutral. Gold showed mixed trends in the week over various economic figures coming in from US

• U.S retail sales and inflation numbers slumped
• Core Retail Sales dipped 0.2%, its first decline since April 2013.
• This indicated to a decline in consumer spending which one of the key indicators of economic growth
• PPI fell by 0.1%, after a reading of 0.0% a month earlier
• US Unemployment Claims dropped to 264 thousand, marking a 14 -year low. 
• Manufacturing numbers were a mix, as Industrial Production gained 1.0%, its best showing since November. 
• The Philly Fed Manufacturing Index dipped to 20.7 points, but this beat the estimate of 19.9 points.

So it was quite a volatile market for gold and there were several factors responsible for this volatility.

DISAPPOINTING GLOBAL GROWTH AND MIXED US DATA REPORTS-

The global equity drop was induced by the European equities sell-off, which was prompted by the negative August industrial production data from Germany and the market's disappointment with the lack of further monetary announcements by the ECB to fight deflation and a likely recession in Europe. The September U.S. retail sales of -0.3%, an inflation expectation of 1.5% in 2019, and foreign growth slowdown have fuelled growth recovery concerns in the U.S. The September manufacturing output climbed 0.5% compared to -0.5% in August, which can signal that the U.S. recovery is holding up.

GOLD DEMAND

The global equity tumult and the ongoing geopolitical concerns have raised the appetite for gold even though the inflationary pressure has created a negative attitude for gold.

The U.S. SPDR gold trust holdings have risen 0.20% this week after declining for four consecutive weeks. 

Moreover demand for gold from India has risen ahead of the biggest festive season of Diwali and many have made their purchases at dips. India's September gold imports jumped sharply to $3.75 billion ahead of the wedding and festival season, data from the trade ministry showed.

Meanwhile in China, the world's largest consumer for gold, has witnessed a significant drop in demand for gold even though price are running low but demand here is also expected to pick up. Growth in Gold mine output from China is set to slow significantly in coming years in the face of declining ore grades and waning profitability, an analyst at Business Monitor International said on Friday.

Now we need to see what's in basket for gold in the coming week. Gold could trade sideways next week and multiple factors are expected to influence the price of the precious metal.

FED- markets will keep an eye in the Fed Chair's speech this Friday

US- Traders will be tracking news coming in from the equity markets, alongside news about a likely global slowdown, the future pace of US stimulus, US interest rates, the Ebola scare in the US , the U.S leading indicators index , the U.S September new home sales, the U.S September CPI, September US leading indicators index and geopolitical tensions the world over.

CHINA-Next week, we will monitor the September China industrial production data, the Q3 China real GDP growth.

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 -

"Is Gold Making A  Comeback?"

http://riddisiddhibullionsltd.blogspot.in/2014/10/is-gold-making-comeback.html