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

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.

Wednesday, 27 November 2019

Gold - Safe, Sound And Stable

In my weekly blogs, I generally talk about gold’s performance, why it has behaved in a particular manner in the respective week, how it looks like and a major economic outlook of the yellow metal.

But today I would like to write about gold from the investors or the markets view point- as to why gold has been in high demand in spite of rising prices, should you look at gold from an investors perceptive, should you diversify your portfolio in to the yellow metal etc.

Gold creates a feeling of safety and security. Most retail investors and fashion and lifestyle consumers trust gold more than the currencies of countries

A bar of gold always retains its value, crisis or no crisis. This creates a sense of security.

As we all know that gold is an asset that has highest liquidity. Gold bolsters confidence in the stability of the central bank’s balance sheet and creates a sense of security.

One of the main reasons, apart from de-dollarization, why central banks have started piling up their reserves.

A study reveals two out of three investors sees gold as a safeguard against inflation and currency fluctuation. A similar number believe gold holds value in the long term, owning the precious metal makes them feel secure and is more trusted than most currencies.

Instead of discouraging people from buying gold, or convincing them that gold is an irrelevant asset, many of these financial advisors are increasingly honest about the true properties of this monetary metal and what importance it holds in your portfolio.

Seeing gold’s safe haven appeal and store value, I wouldn’t be wrong if I say that it is one of the most sought after precious metals.

It is considered as a global medium of payment and it preserves high purchasing power. A country high on gold reserves is always considered as an economically rich and sound country. Gold is highly durable and enduring.  In the past gold was also considered as a means of currency. Even today, every reserve currency in the world today is underpinned by vast gold reserves. Gold is and will always be considered as a strong pillar of stability for any monetary system.

On the other hand when we see the other assets in its class- Shares, bonds and other securities, real estate etc, none of them are risk free and subject to high fluctuations and prices drops during uncertainties. But gold will always yield its value even when times are critical.

Looking at the current year- 2019 has certainly been an exciting year, with gold breaking through long-defended resistance levels.

When we look at the current markets we can see that gold is being pulled and pushed by various factors simultaneously, in fact tether are some factors that contradict itself in influencing gold prices-.

The topics dominating the headlines — Brexit, the US-China trade war and the possible impeachment of US President Donald Trump — all have an effect on the global economy.

In  Prithviraj Kothari's opinion, The performance of gold in 2019 looks even more impressive relative to other precious metals such as silver and platinum.

Strengthening US dollar contradicted by slow global growth- The price of gold and stock markets have seen record highs and the US dollar is strong. At the same time, the US Federal Reserve and European Central Bank (ECB) have been cutting interest rates, yields on $17 trillion (Dh62.4tn) of bonds have turned negative and global economic growth has slowed.

The International Monetary Fund revised down its projections of global economic growth for the fifth time last month with the world’s economy expanding 3 per cent this year, its slowest expansion since the 2008 global financial crisis.

Against this interest rate backdrop, defensive positioning by investors is on the rise, which is supporting gold’s upward price movement in several ways. As global uncertainty has risen, investors have responded according to conventional wisdom, turning to fixed income markets for both safety and stability.

Anybody who’s holding 50 per cent in equities and going towards riskier, non- investment-grade bonds because they need yields should have between 5 and 8 per cent gold in their portfolio.

despite a slight risk of prices declining to the $1,450 an ounce level first, the overall picture for gold is optimistic as investors look ready to buy more.

Tuesday, 19 November 2019

Gold Will Get Its Support

Negative news coming from all over proved to be positive for gold during the week.

Weakness in global growth, lack of clarity in US China trade dispute, weak economic data coming from Asian markets, negative Asian equities, Powell’s speech, unrest in Hong Kong and other ongoing risks, together proved to be good support for gold-

Trade Dispute- On the Sino-U.S. trade front, tensions seemed to have escalated again as the Wall Street Journal reported that the trade talks have stalled over agriculture purchases.

The Journal cited sources and reported that China is unwilling to quantify its farm purchases, a commitment China made as part of a phase one trade agreement.

The news dented hopes that the phase one deal will be signed sooner rather than later, according to the article.

China is also resisting U.S. demands to make reforms on forced technology transfer, which the Trump administration has previously said would be addressed in future trade deals with Beijing.

Furthermore, President Trump revealed that “we were so close to a deal” while speaking at the Economic Club of New York, and went onto emphasized the administration’s approach to “tell it to everybody: if we don’t make a deal, we’re going to substantially raise those tariffs.”

Weak Data numbers- A set of worse-than-expected economic data were cited as providing support for the yellow metal.

Gold prices gained on Thursday in Asia following the release of weak economic data coming out from China, Japan and Australia. Sino-U.S. trade uncertainties also attracted some safe-haven demand.

Powell’s Speech- fresh remarks from Fed officials suggested that the central bank will move to the sidelines and endorse a wait-and-see approach at its next interest rate decision on December 11 as Chairman Jerome Powell told US lawmakers that “the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook of moderate economic growth.”

U.S. Federal Reserve Chair Jerome Powell on Wednesday told the Joint Economic Committee that negative interest rates sought by Trump are not appropriate for the U.S. economy right now.

He also added that the central bank would probably stop (with interest rate cuts) where it is unless there is a “material” change in the economic outlook.

Chinese data- Gold is being supported as the Chinese industrial production and retail sales came way below expectations. In China, October’s industrial output, retail sales and fixed-asset investment all came in worse than forecast, while Japan’s Q3 GDP also grew less than expected.

Asian equities- Asian stocks fell after China’s industrial output grew significantly slower than expected in October, as weakness in global and domestic demand and the drawn-out Sino-U.S. trade war weighed on activity in the world’s second-largest economy.

Unrest in Hong Kong- Anti-government protesters in Hong King, paralysed parts of the city for a fourth day, forcing school closures and blocking highways and other transport links and creating further unrest.

Deterioration in Hong Kong this week will further support gold but what are even more impactful are the ongoing trade talks.

All the above mentioned influencers have been playing an active role in the movement of gold prices. In the long term, the backdrop is pretty conducive. With the global central banks being accommodative, gold will get its support.

In Prithviraj Kothari’s opinion all the above mentioned influencers have been playing an active role in the movement of gold prices. In the long term, the backdrop is pretty conducive. With the global central banks being accommodative, gold will get its support.

Tuesday, 12 November 2019

Gold Likely To Be Pushed Into The Positive Territory

Last week, Gold opened tested the $1515 resistance area but it failed to break higher and made a sharp reversal, losing more than $50 over the last week, the worst weekly performance in years.

It was a tough week for precious metals. Gold was down almost $50, silver down $1. This pull down came in over optimistic trade dispute talks.

On Thursday , Chinese Commerce Ministry spokesman Gao Feng announced that both parties have agreed to roll back tariffs on each other’s goods as part of an upcoming trade deal. Both sides had accepted that if a phase one trade deal came to pass, the U.S. and China would reduce tariffs simultaneously and proportionately.

During the week, there were reports of a phase one U.S.-China trade agreement reaching final stages, prompting gold to become less attractive in the short term,

Gold prices dipped last week in response to news of an imminent trade deal. On Saturday, US President Donald Trump said that talks were moving along “very nicely,” but that a deal would only be reached if it were right for America.

On Friday, however, President Donald Trump told reporters that he hasn’t yet agreed to remove tariffs on Chinese goods.

The US President Donald Trump on Friday said that reports on the rollback of tariffs on Chinese goods was incorrect and poured cold water on the recent trade optimism. It is worth recalling that officials from both sides said late last week that China and the United it is completed.

Following this uncertain statement, Gold prices edged higher on the first day of a new trading week and recovered a part of the previous session's slide to three-month lows, though lacked any strong bullish conviction.

The not so optimistic remarks, coupled with political unrest in Hong Kong weighed on the global risk sentiment and extended some support to traditional safe-haven assets – including Gold. However, the fact that Trump did not completely rule out a deal with China and left the door open to some tariff rollbacks kept a lid on any strong follow-through positive move.

Volatility and uncertainty are alive and well in the gold space as prices push into positive territory following disappointing comments on trade from U.S. President Donald Trump.

Although prices are still down more than 3% for the week, the gold market is clawing back some ground as prices move modestly higher in conjunction with equity markets falling to session lows after Trump pushed back on proposals to reduce some of the government’s tariffs on Chinese goods.

Now all eyes will be focussed on the Important data during that will be out this week and the following one and will influence gold prices-

US economic
Latest consumer inflation figures
Monthly retail sales data.
Fed Chair Jerome Powell's two-day testimony on Wednesday and Thursday
US/China trade headlines
Chinese data that due next week wherein some economists expect to confirm signs of a moderate recovery that could help risk appetite.
A recovery for gold is possible in the coming weeks, he said, pointing out that impeachment hearings against President Trump begin in Congress next week in the U.S

In the near term gold looks promising as following key happenings will help in creating a positive outlook for the yellow metal-

Global economic uncertainty
Fears over a trade war
As a safe haven investment by the investor community.
Slowing economic growth
Underlying uncertainties
Banks are dovish on rates, global economic signals are mixed,” he added.
Ongoing trade disputes between the world’s two largest economies, the US and China
The intrinsic connection between the precious metal and US dollar prices.

In Prithviraj Kothari’s opinion, Inflation, recession, de-dollarization and many such geopolitical uncertainties are bound to hamper global growth and during that period markets will again move towards gold for diversifying risk and creating a more return generating portfolio.

As sentiments remain bullish for gold, a jump in gold prices is soon expected and this will create a room for gold as an alternate form of investment. But gold will have to defend $1425-1450 before contemplating a move upward.

Monday, 21 October 2019

A Favourable Environment Has Emerged For Gold

US China trade war that gathered lot of limelight last week, seems to be put on a back burner as China said that they will not sign any further deals unless another round of talks happen,. There was a renewed volatility when China issued this statement and DOW fell along.

Gold prices edged higher on Thursday after the European Union and U.K. reached a preliminary Brexit deal, with worries that a deal may not pass a weekend vote in the British parliament and signs of a weakness in the U.S. economy providing support for the haven metal.

Gold’s gains after an initial small sell off suggest that many market participants remain sceptical of this latest Brexit.

Gold has benefited from new safe-haven flows. It hasn’t taken much to push investors back into gold; the latest move was triggered after disappointing retail sales numbers for September.

Investors digested a batch of mostly weaker-than-expected U.S. data, which could cement expectations for interest-rate cuts from the Fed.
  • The Philadelphia Fed said its gauge of business activity fell to 5.6 in October from 12 in September
  • Economists polled by Econoday expecting a 7.1 reading and a report on industrial production from the Federal Reserve fell 0.4% in September, marking the biggest drop since April.
  • Data showed that U.S. housing starts slid to an annual rate of 1.26 million last month from a revised 1.39 million in August
  • Initial weekly jobless claims increased by 4,000 to 214,000.
According to some analysts, the disappointing economic data continues to support market expectations that the Federal Reserve will cut interest rates at the end of the month.

According to an unofficial poll conducted with the LBMA delegates, they see gold prices rising to $1658 an ounce, up nearly 11% from current prices.

The LBMA forecast has garnered more attention lately, as their last years forecast has also proved to be fairly accurate.

Last year the conference poll attendees saw gold prices rising to $1532 an ounce.  The bullish outlook came at a t time when gold prices were struggling to hold support above $1200 an ounce. Earlier this summer, expectations of looser monetary policy and rising recession fears helped to rally gold prices more than 20 % for the year, with prices hitting a six year high above $1560 an ounce.

According to reports, this is only the second time in last 10 years that gold has seen a 20% rally. Although prices are off their highs, the gold market is still holding on to a 16% gain for the year.

The signs of a favourable environment for the commodity emerged late last year and have continued to build throughout 2019. Our original thesis is now playing out; we continue to see slowing global growth, a more dovish Fed and real rates below 2% driving demand for the commodity and causing a decoupling in the negative relationship between gold and the U.S. dollar.

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

Tuesday, 1 October 2019

Gold Continues To Ride The Bulls

Has gold really been the safe-haven asset? Has gold really proved to be a hedge in times of uncertainties? Has the yellow metal been the highest return generating asset in its class?

So let’s see what gold has done since 2001. I have always been telling people to buy gold on dips. In 1981, after gold had made its top above $800 it was pushed back into the bears market wherein it plunged to about @250 by 2001; at that time no one even wanted to hear the word gold. People were shifting focus to other means of investment. But I was quite sure that gold was here to stay and it will soon shift its sentiments to bullish. And it happened. I was expecting gold to enter the bulls markets after a 20 year period. Targets were $3000, and currently, it doesn’t seem to be a far reality.

The gold price tends to rise in times of crisis and as of now, the yellow metal has the potential to go much higher even without a major calamity.
Later then, gold will become the most desirable asset when the central banks restart their QE (quantitative easing) programs in order to avoid devastating recessions. The purchasing power of money will be eroded significantly.

Precious metals enjoyed their second-biggest inflows ever in the week to Wednesday, Bank of America Merrill Lynch said on Friday, as festering trade tensions and global growth woes triggered a rush for safe-haven assets.

This quarter too we saw gold running over the bulls. Gold had a good third quarter, rising 8%. 2 factors that suggest, gold may be set for further rises in the immediate future

Demand- We all know that China and Russia have been the biggest buyers of gold in the past decade. On a quarterly basis, central banks increased their purchases of gold immensely in the first quarter of 2019.

The World Gold Council reports that the first quarter of 2019 purchases were the highest in 6 years, rising 68% above the year-ago quarter.

Early this year the World Gold Council reported that central banks around the globe bought the most gold in 2018 on over 51 years. According to the report, last year central banls bought 651 tonnes (metric) of gold. That is an increase of 74% from 2017.

What can be noted further is that India that was once the biggest consumer of gold, will also be seen buying the yellow metal? But the demand is expected to come not from the central banks, but from the locals. The monsoon this year in India has been higher than usual. This leads to a series of events that will further boost agricultural income and this drive increased purchase of gold.

Furthermore, in China, forward contracts have surged to record highs on the Shanghai Gold Exchange and there has been a build-up in China gold ETF holdings since late May.

Tight the unfavourable duty structure in India has not really been helpful in boosting gold demand, but analysts in the market feel that this issue has been boo timing out and a turnaround is soon expected.

Similarly, physical demand in China has been lacklustre due to high prices. But that too seemed to be fading away, where the rise in demand is soon to be witnessed in the Chinese markets too.

Uncertainties- US and China are expected to hold trade talks on 10th October. Simultaneously Iran is also attempting to have talk initiative with the US but the latter is denying all kinds of talks with Iran s of now.

Thought most banks in China will be shut due to Chinese national holiday, this whole week markets will witness Trump’s impeachments dilemma on one hand and Brexit on the other. Nonetheless, these uncertainties will help in evolving the markets.

A noteworthy point is that worldwide money printing triggered by attempts to stimulate economic activity could lead to a substantial gold price increase.

But one thing that cannot be ignored is that as of now one should wait to buy gold. With bullish sentiments at extremely high levels, I think that this is probably not the best time to buy the yellow metal. We will surely witness some dips and that would be the right opportunity.

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

Monday, 16 September 2019

Upcoming Fed Meet Important For Gold

Last week gold was into a wave-like movement where it crossed the $1500 mark but was pulled down back to $1497 over-optimistic global news.

Gold gained ground during European trading hours on Friday. It then gave up some of those gains early in the U.S. trading session. Gold demand in Europe has been strong in the wake of the ECB’s decision to lower rates and re-launch its sovereign debt-buying program.

Gold prices were range-bound on Friday as monetary easing uncertainties by major central banks supported demand while trade talk optimism lifted other assets, curbing gold’s gains.

The gold prices were on a rise in Europe on Mario Draghi’s loosening moves at the ECB, but was not allowed to stay above the $1,500 level it regained there (indeed it rose to above $1,520 at one stage) and was taken down to $1,498 by the market close in the U.S.  The fall seems to have been due to renewed optimism on some kind of trade talks agreement with China is on the cards after news from, later denied by, the Trump Administration that the U.S. might go easier on tariffs on Chinese imports.
De-escalation of the tensions between the world’s two largest economies (the United States and China) have led investors to take out the money from the safe-haven asset gold and move towards risk assets.

U.S. President Donald Trump said on Thursday he preferred a comprehensive trade deal with China but did not rule out the possibility of an interim pact, even as he said an “easy” agreement would not be possible.

US President Donald Trump hinted at the possibility of signing an interim pact with China in the meantime until a comprehensive trade agreement can be worked out. These comments added to the recent optimism in the markets surrounding the trade war, shortly after both sides put off additional tariff hikes on each other’s imports.

Even though there was positive news that came in from the US, investors still believe that gold prices are here to stay and will be stronger with time as they fear that some sort of global slowdown is yet to come.

Some key indicators are pointing toward an economic slowdown:
  • Despite low official unemployment numbers across the board, jobs growth has slowed to its weakest pace since 2011.
  • Despite getting a boost from the Trump tax cuts, corporate earnings growth is now decelerating.
  • Copper and other economically sensitive industrial metals are showing relative weakness.
  • The Treasury yield curve recently inverted.
  • As a result of trade disputes between the U.S. and China, manufacturing activity has slumped to a multi-year low.
  • GDP itself it’s slowing. U.S. gross domestic product in the second quarter came in at 2% growth (down from 3% earlier in the year) – it's second-worst showing since President Donald Trump took office.

With fears of a global recession growing, analysts are starting to speculate that central bankers will cut interest rates further in the near future. They usually cut interest rates when growth is slowing in a bid to stimulate demand and then increase rates when the economy is growing in an attempt to control inflation. 

The problem is, since the financial crisis, central banks have been cutting rates aggressively. But these actions have not stimulated demand as expected. The situation has got so bad that some central banks around the world are imposing negative interest rates, which means consumers have to pay to keep their money in the bank. 

The financial world has never before seen such a strange setup, and this is why many analysts are recommending investors buy gold. 

With the resumption of trade talks between the U.S. and China not due until next month, and any seriously peace-making outcome uncertain anyway in our view, we suspect that gold will see another boost.  U.S. financial data is conflicting, but the feebleness of the global economy may well see the Fed taking vigilant measures, including further rate reductions, to try and insulate the U.S. from a global depression.

News that shook the markets on Monday was the attack in Saudi Arabia. Reacting to it, Gold prices jumped 1% on Monday as attacks on Saudi Arabia’s oil facilities dented risk appetite, boosting demand for the safe-haven bullion, while investors waited for clues on monetary easing from major central bank meetings due this week.

The gold price does seem to be under pressure to rise and eventually we do see this thrust driving prices upwards. Much may depend in the short term, though, on the outcome of next week’s FOMC meeting, and the interpretation of the various statements from Jerome Powell. Will the Fed lower interest rates again and, if so, are there further likely reductions ahead this year?

As per our Managing Director, Prithviraj Kothari thinks that the next major wave of move in gold prices will be governed by the outcome of the upcoming Fed meeting.

Friday, 30 August 2019

Investors Increasing Their Gold Exposure

When some people just started writing off gold last week stating that it was a bubble, the yellow metal once again proved its opposition wrong.

Though gold consolidated in a narrow range of $1528 to $1493 till Thursday, it did manage to pop up on Friday.

Gold has risen nearly 8% so far this month and about 19% this year, and was set for a fourth straight week of gains.

Gold prices rose by 2% on Friday as investors construed U.S. Federal Reserve Chair Jerome Powell’s speech as leaning toward a dovish monetary policy stance and President Donald Trump’s latest comments exacerbated trade tensions with China.

Powell said the U.S. economy is in a “favourable place,” but gave few clues about interest rate cuts at its next meeting. However, he listed a series of economic and geopolitical risks the Fed is monitoring, noting these were linked to the trade spat.

Spot gold rose 1.9% at $1,526.60 an ounce on Friday, shaking off slight headwinds ahead of the Fed Chair’s speech.

Prices earlier rose to $1,528.79, the highest since Aug. 13, when spot gold had scaled a six-year peak of $1,534.31.

Contradicting to the price rise, data released showed that US jobless claims dropped 12,000 to seasonally adjusted 209000 for the week ended on Aug 17. The IHS Market Flash Purchasing Managers Index came at 49.9 below 50 levels for the first time since Sep 2009. The yellow metal hits an intraday low of $1493.44 and is currently trading around $1495.99.

Markets were eyeing US Fed Chair Powell's speech in Jackson's hole symposium for further direction.

Some early comments revealed that FED is going to be dovish but not outright one and the rate cut won’t be on accelerated mode.

The US 28.10y yield inversions are the real headache for economists whether or not the recession is coming now.

But the real culprit might be the USD-CNY i.e. Yuan on its depreciating fast and sooner it would be bringing more uncertainty and uncertainties are the best time to put money into gold.

Trump tweeted on 21st August that he is hoping a china deal. Fed minutes revealed all expected scenario and two of the members of the Fed actual wanted. 50% rate cut and finally did.25% last month and overall commentary was dovish and more centred around global economic weakness. Trump also ratcheted up the rhetoric on China, ordering U.S. companies to look at ways to close operations in the country, which sent equities tumbling and drove further inflows into safe-haven gold.

This came after China unveiled retaliatory tariffs against about $75 billion worth of U.S. goods.

The fact that Powell said that they (the Fed) will act appropriately to sustain expansion is pretty bullish for gold. The two primary tools they have are quantitative easing (QE) or lower rates - both those tools will cause gold to go higher

Powell’s speech prompted a backlash from Trump on Twitter, asking whether the Fed chair was a greater “enemy” than China’s leader Xi Jinping.

In normal times, investors need lower prices to persuade them to park their money for ten years, but when trouble is brewing, they are prepared to pay more for a secure long-term home for their cash.

Conventional thinking has it that gold, along with other “hard assets” such as real estate, flourishes when an economic boom, with attendant inflation, is driving investors and traders away from conventional securities such as cash, stocks and bonds and towards investments likely to hold their value.

There are three reasons why we believe that now is the right time to think about increasing gold exposure.

The first would be that broad market valuations are high, which would suggest that equity returns over the next decade could be lower than in the past decade. Historically, that has often coincided with strong returns for gold and gold equities.

Secondly, the case for the US dollar over the coming decade is weak. Primarily, this is the function of very large US deficits. Again, when the dollar is weak historically gold has performed well.

Finally, the most important; there are global macro policy risks. These are as likely today as at any point since the Second World War and the cause of that are record-high global debt burdens.

The risk here is that macro policy responses could continue to be unconventional and potentially become more extreme, driving real interest rates very low or even negative.

So as per our Managing Director Prithviraj Kothari's opinion, gold seems to be the best option to park your funds.

Tuesday, 2 July 2019

Investors parking funds into Gold

Gold is on a winning streak, shining brighter than before. Investors, households, traders and central banks around the globe are parking cash in it. Gold has rallied its highest in the last six years in the international market. In India, it hit it’s highest ever on June 25. In one month, gold has gained 12% and it appears the Bull Run for the yellow metal will last longer than one thought.

Gold prices have surged to the highest since 2013 as the U.S. and the global economy slow and due to the likelihood of a return to ultra-loose monetary policies. Rising geopolitical tensions in the Middle East and between an aligned Iran, Russia and China versus the U.S. is also leading to safe haven demand. U.S.-Iran relations have deteriorated sharply whereby war has become a very real possibly alas.

Monetary policies - The US Federal Reserve, the country’s central bank, did what many expected last Wednesday, and held interest rates steady while signalling that a rate cut is on its way. Now, meaning no change to the 2.25% to 2.5% range on the federal funds rate. Nine of 10 FOMC members voted to keep rates unchanged. The Fed reportedly dropped its pledge to be “patient” on widely anticipated rate cuts, meaning it could be poised to act. Also, Reuters said, Fed Chair Jerome Powell stopped referring to below-target inflation as “transient”. Reading between the lines gold traders took the message and ran with it, with the precious metal’s price hitting a five-year high.

Economic slowdown - Macroeconomic growth is falling all over the world. Joblessness is not peculiar to India, jobs are falling across the globe and investors are not comfortable opening their purse strings due to the uncertain economic and political environment. Hence, the cash will be parked in the safest haven, the value of which could possibly never come to zero.

US-China trade war - The other reason for gold being on a tear is the risk of the ongoing trade war spiralling into a currency war. If that happens, gold will turn into a bigger monetary asset, it will gain further.4he likelihood of more central banks joining in the race to buy gold will increase with the increase in anxiety about an uncertain future. Gold will also play as the most important asset class as global risks in equity markets rise.

Geopolitical tensions - Concerns arising out of mounting trade war and geopolitical tensions between the US and Iran have added to the dollar weakness and therefore lending an extra shine to gold. On June 25, gold hit its highest in six years, selling at Rs 35,800 per 10 grams, clawing back to 2013 level when it had touched the highest due to government’s desperate measure of an unprecedented import duty hike on the yellow metal

The result was an immediate jump in the gold prices. The rise in gold futures was even more dramatic, with gold for delivery in August rocketing to a fresh high $1,366.60. The last time bullion was priced that high was just over five years ago.

Weak Dollar - gold prices share an inverse relation with the dollar. When the dollar, the world’s most powerful currency loses shine, gold takes over from there. In the month of June, it shined the most, boosted on the back of a weakness in the dollar after the US Federal Reserve signalled it would cut interest rates, going forward, as the US economy was sagging.

Trade, economic and geopolitical uncertainty have seen safe-haven demand return and pushed prices higher.

Apart from this news what made headlines was the G20 summit which ended with a lot of positives and negatives.
Positives- Finally the US and China formally agreed for a re-talk of their completely stopped talks 6 weeks ago.

Negatives - Trump looked desperate for any kind of deal with China, which compelled markets to believe that there is some kind of deterioration of the US economy.  This happened following his face-saving comment on Huawei and later Kudley clarified that there is no big relief for this Chinese company.

His visit to the North Korean border didn’t go down well with the markets.
Some important numbers that market will track in the week are-
China Manufacturing PMI
US Manufacturing PMI

The month ended with a lot of glitters for gold as it claimed 6 years high of $1422 and is expected to see big ranges this week if there some kind of news coming in  from
Economic data

Based on the futures markets we can say that if gold crosses 34005 then we can expect a rally of 34250- 34400. If it drops below 34005 then e can expect a further fall between 33875 to 33625.

Thursday, 27 June 2019

Markets should wait for more stability

Last week, the price of gold spiked above $1,400 per ounce, a level that, signals the beginning of a new bull market for gold.

Many factors have been driving gold’s price higher, including recent changes in the U.S. Federal Reserve’s outlook that increased the chances of future rate cuts, the European Central Bank’s comments from earlier this month signalling that further rate cuts may also be a possibility in Europe, falling U.S. Treasury rates and a declining U.S. dollar.

The surge in the price of gold following the Federal Reserve meeting indicated a material change in market behaviour as the adjustments to the Summary of Economic Projections (SEP) fuel better for lower US interest rates.

Some disappointing numbers coming in from the US strengthened gold prices further.
The US economy showed fresh worrisome signs on Monday as home sales and consumer confidence sank. Sales fell 7.8% to a five-month low in a sign that low rates aren't spurring activity. Consumer confidence also dove to 121.5 from 131.0 as the expectations survey cratered. Those numbers added to the pessimism in the US dollar early and lifted gold for the sixth day.

On a day filled with economic data and Fed speakers, it was St Louis Fed President James Bullard who stole the market's attention with a hint that a rate-cutting cycle isn't coming. Instead of a series of rate cuts, Bullard implied there would be one or two. 

Like a typical Bollywood masala movie, there were a lot of twists and turns that continued on Fed chief and other Fed members as FED GUV had appeared just before Powell’s Speech on 25th June, and he said that an emergency is not beyond the realm for Fed.
Later Powell came out and stated that Fed and the independent Body don’t come under political pressure and that one weak data doesn’t necessarily mean a weak economy.

However, comments from St. Louis Fed President James Bullard, a 2019 voting member on the FOMC, suggested the central bank will insulate the US economy with an “insurance cut” as the official insists that a reduction of “50 basis points would be overdone.”

Moreover, Chairman Jerome Powell pointed out that the baseline outlook for the US economy “remains favourable and it seems as though the FOMC will take a more reactionary approach in managing monetary policy as the central bank head pledges to “closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion.”

With that said, details of a US-China trade deal may ultimately lead to a minor adjustment in monetary policy, but Chairman Powell and Co. may have little choice but to re-establish a rate cutting cycle as the Trump administration continues to rely on tariffs and sanctions to push its agenda.

These price movements had a spill effect in the domestic markets too. Local gold prices hit a record ₹35,960 per 10 grams on Tuesday, having jumped more than 10% over the past month. People generally don’t tend to buy gold in such high volatile markets. Such high jump in prices is welcomed with a dampening demand as investors and consumers would prefer to buy gold in a more stabilised market.

So all in all, the DOW turned weak. The US 10y yields did not gain and still hover 2.00%. This is one indicator that rate cut will be there and the dovish view has to be maintained by FED and that’s the reason that gold cannot be bought at $1405-$1425.
We would advise markets to wait for more stability and clarity on the global economic front.

Tuesday, 25 June 2019

Uncertainty High, Gold High

Gold prices have surged this month, passing $1,400 an ounce for the first time since 2013.
Gold is headed for its best week in three years with it set to close near $1,400 per ounce.
Sentiments in markets are bullish and it’s quite simple to state the reasons for the same.

Everything from dovish central banks, technical indicators, negative-yielding bonds and fears of a military strike between the US and Iran are all working in favour of higher bullion prices.

The best performing metal over the past 15 days was gold, up 4.26%. Initially gold traders and analysts were quite neutral on their price outlook for gold. They thought gold will remain more or less stabilised until it hit a five-year high this week and broke above $1,400 per ounce. Bullion got a huge boost after the Federal Reserve kept interested rates unchanged on Wednesday and signalled a readiness to cut rates due to increased economic uncertainties.

Another reason why gold is back in the limelight is that investors are seeking havens amid slowing global growth due to the fallout from the U.S.-China trade dispute. Furthermore, central banks are globally adopting a more dovish tone.

Last week on Wednesday, the Fed left its key rate unchanged and it dropped a reference to being “patient” on borrowing costs and forecast a larger miss of their 2% inflation target this year. The greenback weakened to erase its 2019 gains while the yellow metal strengthened.
In the past week alone the price shot up almost 10 per cent, to $US1408.80 an ounce, with the depreciation of the Australian dollar pushing the price in local currency terms to record levels above $2000 an ounce.
The movement in the past week points to one of the factors driving the price. The 9.8 per cent spike appears to have been a direct response to last week’s US Federal Reserve Board’s meeting, which signalled likely cuts to US official interest rates later this year.

Gold prices rallied to six-year highs last week and continued posting gains on Monday at $1,403 per ounce. In the move to reduce its dependence on the dollar, China has been piling up its reserves, which has added to the precious metal’s resurgence.

The People’s Bank of China has purchased more than 70 tons of gold since December, according to the World Gold Council (WGC). Before that, the Chinese central bank had not reported an increase in gold reserves for more than two years, and the official figures remained unchanged from October 2016 to November 2018.

In fact, it’s not just China. Central banks generally have been diversifying their reserves away from US Treasuries. According to the World Gold Council, they bought 145.5 tonnes of gold in the first quarter of this year, the most since 2013
Central banks continue to show their love for gold. Kazakhstan raised its gold holdings to 11.93 million ounces in May, up from 11.79 million ounces in April. Russia’s climbed from 70.2 million ounces to 70.42 in May. Turkey was also up to 16.03 million ounces in May from 15.99 in April. Additionally, Turkey saw it's gold reserves rise $167 million this week from the previous week to now total $21.7 million worth of reserves, according to central bank data.

President Trump might be starting a currency “war,” in addition to the ongoing trade war. After the European Central Bank (ECB) announced it was prepared to cut interest rates further below zero, Trump published a series of tweets accusing the bank of unfair competition. Trump has spoken of reigning in the dollar, which would likely be positive for the price of gold, as the two have historically had an inverse relationship.

President Trump’s threat to put tariffs on Mexican imports led to the gold price jumping in June. By linking tariffs to non-trade issues, Trump has increased the range of issues that could be complicated with tariffs and hence raised the level of uncertainty. Although the threat of tariffs lasted for only a week, gold held on to its gains.

The world’s two largest economies US and China have been involved in a trade conflict since March 2018. In the latest escalation, the US increased tariffs to 25% on $200 billion worth of Chinese goods. China, in response, introduced duties of 25% on 5,000 US products worth $60 billion.

The US-China trade dispute is ongoing and the US is holding trade talks with Japan and the EU this year. In addition, the UK still has to leave the EU, so economic uncertainty looks likely to remain high, giving investors several reasons to look to gold as a safe haven.

Tuesday, 21 May 2019

Markets wary of the war

Last week the yellow metal was all green over escalating tensions of the US China trade war. Early in the week, spot gold prices rose 1.1%, registering their best one-day percentage gain in nearly three months after China announced that it would impose retaliatory tariffs on a range of U.S. goods.
After Witnessing its biggest one day percentage loss in a month on Thursday, gold managed to stabilise at around $1286.27 an ounce.

Spot gold fell 0.8% on Thursday, its biggest one-day percentage decline in a month after risk sentiment improved.

Gold welcomed a series of key data, important numbers and crucial news over the week.

The equities and dollar have boosted due to strong corporate earnings created pressure on gold as equities and dollar strengthened. A firm dollar, placed gold in the red marks. 
Furthermore, U.S. stock indexes extended gains on upbeat earnings as well as robust economic data that underlined the strength of the domestic economy. Meanwhile, the dollar index hit a two-week high against a basket of currencies.
The U.S. housing data showed home building increased more than expected in April, while unemployment benefits fell more than expected last week, pointing to sustained labor market strength that should underpin the economy.
The pullback in risk aversion lifted treasury yields. The rise in yields underpinned the U.S. dollar.

Stronger dollar makes gold more expensive for holders of non-U.S. currency.
Meanwhile, Thursday’s fall in gold prices has worsened the technical picture for the metal. Gold is on its third negative trading day as it seesaws near $1276.50 ahead of the European open on Monday. Bullion traders were happy initially as reports concerning the geopolitical tensions between the US and Iran, coupled with the US-China trade pessimism was released.

Investors couldn’t take much leverage of the gains as markets alter shifted focus on Australia’s surprise election results and optimism surrounding the trade relationship between the US, Canada, and Mexico.

Continuing on last week’s sentiments, , Gold fell to a more than two-week low on Monday as investors preferred the safety of the dollar, with the currency underpinned by robust economic reports out of the United States, even as geopolitical risks and trade tensions persist.

Spot gold was steady at $1,277.86 an ounce during Monday’s trading session, having touched $1,273.22 for its lowest since May 3.
Some believe that the bullish trends have started hovering around gold. People have started diversifying their finance into equities and dollars. They are currently proving to be attractive modes of investments.

A strengthening dollar is creating pressure on gold, the dollar held strong over the following news-
After strong U.S. housing data and a report pointing to lower unemployment helped the U.S. currency to mark its biggest weekly rise last week since early March.
Renewed U.S.-China trade fears have also helped the dollar to mimic its trajectory from last year, when it was preferred to gold as a perceived safe-haven asset.
Investment demand for gold failed to pick up. Even with geopolitical tensions, no safe-haven demand  emerged.

Gold will be an attractive safe-haven asset as rising trade tensions weaken the U.S. economy and drag down the U.S. dollar, according to a recent report from Morgan Stanley. U.S. President Donald Trump has until May 18 to decide whether he will impose a 25% tariff on car imports from the European Union. The deadline comes 90 days after the U.S. Commerce Department said in a study that auto imports pose a threat to American national security.

Apart from the current trade war there are some other factors that attract attention-

Risk airing from the European Union economy
Voting in the next crop of MEP’s
OECD will probably downgrade its global economic outlook.
The Fed might unnerve investors further by reiterating that hopes for a lifeline from monetary policy are almost certainly misplaced in the near term
A speech from Chair Powell and minutes from May’s FOMC meeting will probably hammer home officials’ preference for a “wait-and-see” approach

Amongst all this, the trade war definitely acts as a wild card. Prices have proven to be responsive to the running commentary on negotiations from media outlets linked to the government in Beijing as well as US President Donald Trump’s Twitter account. Nonetheless any statement released from any side will run volatility waves into the market.

Tuesday, 14 May 2019

Trade War pushes gold prices high

Gold prices ended last week on a high note as prices rose on Friday over the escalating US China trade war. Gold posted a weekly rise as the United States raised tariffs on Chinese goods and increased fears of a global economic slowdown, with a weaker dollar also offering support to the precious metal.

On May 9, the US government announced that since May 10, 2019, the tariff rate imposed on the $200 billion list of goods imported from China has been increased from 10% to 25%.

The above measures by the United States have led to an escalation of Sino-US economic and trade frictions, contrary to the consensus between China and the United States on resolving trade differences through consultations, jeopardizing the interests of both sides and not meeting the general expectations of the international community.

The United States intensified a tariff war with China on Friday by hiking levies on $200 billion worth of Chinese goods amid talks to rescue a trade deal. U.S. President Donald Trump said on Friday he was in no hurry to sign a trade deal with China.
Uncertainty over the real impact on [the] U.S. economy and Chinese economy was driving gold prices higher.

Gold pieces rallied over the following-

The levy of increased tariffs by the Trump government has increased the demand for safe haven assets like gold and bonds mainly because equities saw a sharp drop over the trade war. Rise in demand ultimately resulted in a rise in gold prices
Another spill over effect of the trade war can be seen in the fact that the US Federal Reserved may be forced to cut interest rates which will further result in a rise in the yellow metal.
Global anxiety has also seen an uptick as U.S. bombers arrived at a U.S. base in Qatar. The bombers have been sent to the Middle East to counter what Washington describes as threats from Iran.
Bullion was also supported by a weaker dollar which fell after data showed a smaller-than-expected rise in the U.S. consumer price index last month.

Initially markets were expected that a trade deal will be struck between the two biggest economies of the world. However what happened over the weekends was much beyond market expectations.

A full-scale trade war between the US and China began. This war of words is closer than ever after Beijing hit back with retaliatory tariffs on Monday. The Chinese Yuan fell by more than 1%, prompting a selloff in copper, while gold jumped $11 to 1299 and Bitcoin hits $7400. USD fell across the board on reports that some Chinese scholars have mentioned Beijing taking the "nuclear option" -- selling US treasuries. Risk trades have been hit hard to start the week with safe haven assets surging.
After vowing over the weekend to "never surrender to external pressure", Beijing defied President Trump's demands that it not resort to retaliatory tariffs and announced plans to slap new levies on $60 billion in US goods.

China Says to raise tariffs on  some US goods wef June 1
China Says to raise tariffs on  $60B of U.S. goods
China says to raise tariffs on  2493 U.S. goods to 25%
China may stop purchasing US agricultural products :GLOBAL TIMES
China may reduce Beoing orders: GLOBAL TIMES
China additional tariffs do not include U.S. crude oil
China raises tariff on US LNG to 25% w.e.f. June 1
China to raise tariffs on import of  U.S. rare Earths to 25%

Here's a breakdown of how China will impose tariffs on 2,493 US goods. The new rates will take effect at the beginning of next month.
2,493 items to be subjected to 25% tariffs.
1,078 items to be subject to 20% of tariffs
974 items subject to 10% of tariffs
595 items continue to be levied at 5% tariffs

In further bad news for American farmers, China might stop purchasing agricultural products from the US, reduce its orders for Boeing planes and restrict service trade.
China's announcement of counter tariffs acted as a booster for gold prices and resulted in its rise. There have been talks in the market that the Peoples bank of China may start dumping Treasury’s. But will it also dump US stocks and real estate? Well now we get concrete reasons behind the piling of gold reserves by the biggest gold consumer of the world.

Friday, 10 May 2019

Gold struggles to sustain bullish sentiments

Gold performed well in April. In fact it had a fairly moderate performance given the fact that a lot of macro factors were playing around its prices. US equities, Fed comments, US China trade war, were among the key macro factors that were highly influencing gold prices. Still it managed to stay stable for the month of April.

This week too, gold prices were more or less unchanged. Gold prices were little changed on Thursday ahead of Sino - U.S. trade negotiations, while demand for government bonds, Japanese yen and a key technical resistance limited gains for the safe-haven metal.

In fact after a fairly dismal start to the new month, it began to trade upwards and was some $3 higher by the New York close, and then moved higher on Wednesday.

Once again, gold saw some interesting influencers in the market-

Equities - U.S. equities all fell sharply and gold began to trade upwards. Now it’s not clear, whether gold's rise and the fall in equities were interlinked, but probably the two were connected in some respects.

Demand from Indian Markets - Indian demand and imports were reported by Bloomberg to have risen sharply in April, ahead of the Akshaya Tritiya Festival.  This is seen as an auspicious time to buy gold and silver in the sub-continent and, coupled with lower gold prices over the past few weeks, seems to have boosted demand. As Indians celebrated this Festival on 7th May, we saw jewellers and bullion  traders piling their stocks in the month of April, thus resulting in a rise in demand as reported by Bloomberg.

Demand from China - India used to be the world’s largest gold consumer, but has been comfortably overtaken in this position by China in recent years.  The nation’s central bank has been announcing monthly gold purchases again since December last year and in April it reported it added 14.93 tonnes of gold to its reserves – its highest monthly total since it commenced re-reporting monthly increases and the fifth successive month of reported increases.  This reported figure still puts China in 6th place among national holders of gold, almost 280 tonnes behind Russia in fifth place, but we think China’s true gold reserve figure could be far higher, if one takes into account the nation’s track record of holding substantial amounts of gold in accounts it has, in the past, deemed not re-portable to the IMF.

Trade war - Washington has accused Beijing of backtracking on commitments made during trade negotiations and U.S. President Donald Trump has threatened to hike existing tariffs on Chinese goods on Friday and impose fresh levies soon if there is no deal.
President Trump’s aggressive statement on raising tariffs on some $200 billion of Chinese imports with a deadline on Friday re-ignited trade war fears.

Supply - Demand - New gold supply is pretty flat at the moment given that there are few significant new gold mining projects coming on stream and the price has not been high enough to stimulate any additional scrap sales.  Even if the gold price rises sharply the lead time taken to bring new projects into production is long.  Indeed higher gold prices could conversely lead temporarily to a production downturn as miners open up lower grade sections to prolong mine lives.  And lower grades at unchanged mill throughput's means lower output.

Keeping the current global scenario in mind, it seems that gold will continue to hold its bullish position for which it has been struggling to sustain since a few months. Nonetheless, any news that will be bad for the world will prove to be good for the yellow metal.


Thursday, 2 May 2019

A very important week for gold

Although the gold market has struggled to attract the attention of general investors, the precious metal might not be as unloved as one would think.
The metal posted its biggest daily percentage gain in seven weeks on Friday after the dollar fell against a basket of currencies, as investors overlooked the strong economic growth in the United States to focus on the pain points.

Gold prices were mostly unchanged on Monday, trading near the more-than one week high touched in the previous session, on bets that the U.S. Federal Reserve might cut interest rate this year after a recent data showed inflationary weakness. Spot gold mildly eased by 0.1 percent to $1,284.31 per ounce at 0626 GMT, having hit its highest since April 16 at $1,288.59 in the previous session.

The main reason for rally in gold prices, were the important data numbers released from the US over the past few days.

Data showed that U.S. first quarter growth of 3.2 percent was only motivated by the short term stimuli of a dwindling trade deficit and the largest accumulation of unsold merchandise since 2015 which may later weigh on the country’s economic picture.
Core personal consumption expenditure price index figure, the Fed’s preferred metric of inflation, increased at only a 1.3 percent rate versus 1.8 percent in the prior quarter.
About a third of economists polled by Reuters on April 25, already expect one real rate cut by 2020
Lower interest rates in the U.S. put pressure on the dollar and bond yields, making greenback-denominated gold less expensive for holders of other currencies. It also increases the appeal of non-yielding assets such as bullion.

Apart from the data released, we now look forward to the series of events that are lined up. It’s going to be a very busy week ahead with the calendar packed full of market data and events across the globe.
From Monday 29th April to Friday 3rd May a host of data releases await the markets

USD Employment Cost Index
USD Chicago Purchasing Manager
USD Pending Home Sales
USD Consumer Confidence Index
USD Pending Home Sales
EUR ECB Vice President Guindos Speaks in London
USD ISM Manufacturing
USD ISM Employment
USD Continuing Claims
USD Non Farm Productivity
EUR Euro Zone Producer Price Index
EUR Euro-Zone Producer Price Index
EUR Euro-Zone Consumer Price Index Core
EUR Euro-Zone Consumer Price Index Estimate

Japan will be closed celebrating ‘Golden Week’ thinning liquidity in Asian hours, leaving markets vulnerable to ‘spike’ moves.

 In such conditions, gold would normally grab a bid but with the US dollar continuing to weigh on the precious metal, a neutral stance looks justified.
But all this doesn’t end here. These were the main data releases/events. A look at the calendar shows that there are a 28 ‘high importance’ data releases and events, all of which could change the risk landscape. A few highlights include, the latest interest rate decisions from the Bank of England and the Federal Reserve, the monthly US Labour report and various GDP and inflation releases across the Euro-Zone. Now we need to see how positively it affects the yellow metal or plays a spoiler instead.

Monday, 29 April 2019

Gold Not Concerned about a rising dollar

Spot gold fell for a second straight month in March even after the Federal Reserve said it would pause on interest rate hikes for the rest of the year, which lead to a surge in equities instead.  The global spot gold prices were trading slightly higher at $1,274.20 an ounce, while silver was trading up at $14.93 an ounce in New York.

Meanwhile on Wednesday, in the domestic market, gold prices were down by Rs. 50 to Rs.3270 per 10 gm in the capital over weak demand from the jewellers.

It’s proving increasingly difficult for Gold bulls to prove their case under present market conditions, thanks to a broadly stronger Dollar, equity markets hanging on to most of their year-to-date gains and cautious optimism over US-China trade talks.
However, dark clouds still linger over the global economy, and data points that signal a turn for the worse for the worldwide context could spark a massive rebound for Gold back towards the $1,300 handle. The ongoing geopolitical crisis, trade wars, dovish Fed comments will add up to the rally in gold prices.

Gold prices are expected to remain higher by 3.2 per cent this year on account of strong demand and an extended pause in interest rate hikes by the US Federal Reserve, World Bank Commodity Outlook for April 2019 said. The yellow metal rates surged in the first quarter by 6.1 per cent after hitting a downward path in September last year. The rise may be attributed to the support offered by robust demand and decline in the real interest rates, the report said.

We can’t ignore the constant buying by central banks. The  share of gold holdings have been increased by the central banks of the emerging markets such as China, India, Russia and Turkey so as to diversify their asset base, the World Bank report said. The investors have increased their net long positions in the gold-backed exchange traded funds, this has lead to an increase in demand and furthermore an increase in the prices of the yellow metal.

The Dollar’s year-to-date climb has kept Gold rooted near its lowest level in 2019, below the psychologically-important $1,280 level, as markets keep an eye on the $1,265 support line.
Still, the longer term outlook is more bullish as central bank purchases should be supportive of prices, with inflows running as high as last year, and a rally of $1,450 an ounce over 12 months awaits.

Wednesday, 24 April 2019

Gold is here to stay

Gold was set for a decline last week over strong economic growth numbers. Last week, gold fell ahead of first-quarter earnings season as the dollar gained while the precious metal slumped to its lowest level of the month. Gold fell 1.23 percent at the close of Thursday’s trading session to settle at a price of $1.295.15. Nonetheless, analysts maintain that this is only a temporary setback.

Although equities are doing their part to weigh on gold in the near-term, it is just part of the story. Relative and resilient strength in the U.S. dollar is another factor weighing on the precious metal.

Gold was pulled down over strong economic numbers coming in from the Chinese economy-

China’s economy expanded more than expected in the first quarter of 2019
While industrial output and retail sales for March were also better than expected.
Trade and credit data that came out last Friday also exceeded forecasts

Strong numbers coming in from China, imply that a global slowdown has been diminished to quite some extent. Furthermore, according to the minutes published at its last Federal Open Market Committee meeting, the Federal Reserve did leave open the possibility of possible rate hikes this year if the economic data suggests warranting such a move. This, of course, wouldn’t bode well for gold.
The minutes confirmed that if the economic data continue to support the economy, a rate hike could be on the table at the back end of this year. Luckily for the dollar bears, this wasn’t the majority view, at least, not for the time being.

Does this mean the gold will soon lose its sheen?

Well, gold is being supported by ongoing geopolitical issues (U.S.-China trade war and Brexit, among others), concerns around slowing global economic growth and recession fears, and a more dovish U.S. Federal Reserve (no rate hikes in 2019).
Though many investors are shunning gold and shifting focus to equities, there is a set of market analysts that still believe that gold needs to be added in ones portfolio as its gives an insurance cover.

A crisis is expected and it’s soon we realise that one needs to protect his/her finances in times of crisis. And which metal can best prove to be a safe haven asset other than gold?
Gold had faced a similar situation in 2011. Gold was widely ignored since 2011 as an asset class for institutional portfolios. In 2018, bullish sentiment for gold was at a multi year low. Not many people were interested in owning gold.

But then investors realised that they need to own gold in order to protect themselves in times of crisis.

Given the current situation and what is expected in the near future, we can say that gold is here to stay. Even though equities are rising, the momentum won’t sustain in the long run. Fed is not expected to hike rates in 2019. Less hikes and a rate cut would translate to dollar weakness–an open path for strength in gold. Other headwinds include increasing concerns of slowing global economic growth, which could spur a move to safe havens like gold.

And hence this is a very good time for people to get a little bit more defensive and use gold to reserve the wealth they have made in equities.