PRE-BUDGET VIEWS AND SUGGESTIONS

    FDI in Indian Bullion Industry is the key to Growth 

                                                                        by Mr. Prithviraj Kothari, MD – RiddiSiddhi Bullions Ltd.
 

The most discussed topic of this month is the "Budget" and how it will affect the commodities  business. Lately, I have been asked about my views and expectations from this year budget. I would like to put forward the following points-

Expectations are high for a massively reformist Union Budget that would give the somnolent economy the jolt it badly needs.

There are quite a lot of aspects that need immediate consideration for action as the bullion industry has been suffering a lot due to the current norms and practices.

Research & development is the key to the future of Indian bullion industry. Data by China Gold Association (CGA) shows China produced 451.8 tons of gold in 2014, up 5.52% year on year. It has been the eighth consecutive year for China to become the biggest gold producer globally.

Primarily, there is a need for R&D to be carried out in an efficient way in the country, which will increase production of the metal. This will reduce dependency on imports and in turn help the government to increase the forex reserve. As the metal will be extracted locally, customers will be benefitted pricewise, due to local production.
R&D is costly which requires huge investment, but with the help of FDI we can surely work out the way to get the most out of it. In turn, FDI would help in strengthening our rupee and in turn reduce the depreciation of our currency.
We expect the following to be executed immediately and in a short period of time.

a.    GST implementation is a must: If implemented, it is expected to provide a significant boost to investment and growth of the economy. GST will have a significant impact on almost all aspects of businesses operating in the country, including the supply chain, sourcing and distribution decisions, inventory costs and cash flows, pricing policy, accounting systems and transactions management.
We expect a flat 1% GST across India to be levied by the government, which would replace most indirect taxes currently in place. 

b.    Introduction of Option product for Commodity exchange is must: Those who have the exposure should be given an opportunity. It will be a boon for a bullion trader and jeweler. By using this instrument they can hedge their future position and in a way provide the necessary risk cover. An investor will also highly benefit through this instrument. He/she will get a chance to invest in a larger quantity of metal with a lower investment and reap benefits till the expiry date.

Commodity Transaction Tax (CTT) reduces market participation and lowers liquidity.

c.    Allow Depository schemes for bullion industry corporate: Gold Deposit Schemes are offered by banks in which investors deposit gold for a period of certain 3 years earning a fixed rate of interest.  Currently that has been reduced to 6 months. The depository scheme that the banks and MFs are enjoying should also be allowed to corporate, working for bullion industry. It will help to increase the gold reserves and in turn benefit the customers willing to deposit their idle gold. The government should instead harness the existing reserve of gold in our country rather than turning towards imports and implementing alarming hike on custom duty. Hike in the duty on imports will in no way; curtail the demand, as the precious metal has always been regarded as one of the best investment options for social security.

d.    Introduce schemes to convert unaccounted gold to accounted one: Indian households have nearly 25,000 to 30,000 tonnes of Gold. I expect that this budget would show an effective way to gain revenue by exporting it. I would suggest Government of India to introduce schemes like minimum tax scheme wherein an investor is charged minimum tax to convert his/her unaccounted gold into an accounted one. By this the government treasury will also increase and the idle gold can be put to use. The other scheme can be a VDS scheme (voluntary disclosure scheme) by which the Gold /Silver can be brought to the market.

e.    Extend Gold Loan scheme period and LC Tenure: We expect an increase in Gold loan scheme period to extend from 180 days to 360 days and LC tenure from 90 to 180 days. As of now Gold Loan is allowed up to 180 days which implies, a jeweler has to rollover his/her position twice in a year and that in turns leads to increase in imports. If the loan period is extended to 360 days, one cycle of loan will be reduced. A direct effect will be reduction in imports.

f.    NRI’s to be allowed to bring more Gold in India: Currently NRI’s are allowed 1 Kilo of Gold while arriving in India. Earlier this was 10 Kilos. We feel this cap should be raised back to the earlier levels or even more which would help in import reduction and lower the Forex pressure.


“The primary purpose of this blog by Prithviraj Kothari - MD, RSBL, is to educate the masses of the current happenings in the Bullion world.”

- Previous blog -

"Gold Perplexed"

http://riddisiddhibullionsltd.blogspot.in/2015/02/gold-perplxed.html

ALL NOTIONS TO SEE GOLD AT $800 DESTROYED!!!

                                                                                                             - By Mr. Prithviraj Kothari, MD, RSBL

A few weeks earlier, we saw a lot of noise in the market…but this time it seems that someone left the loudspeakers on!

Well, oil and SNB played the game here.Precious metals showed great volatility- all thanks to the fluctuating oil prices.

Crude oil was highly volatile after a report from Paris based energy agency IEA depicted a likely reduction in Non-OPEC output for 2015 by 350,000 BPD. 

Moreover, gold and silver prices soared in Euro terms after the SNB moves and now many market players are beginning to wonder if a loss of confidence after the Swiss fiasco has started a run on gold? 

Bullion traders said sentiment turned better after gold rallied to the highest since September in global markets as the dollar weakened after Switzerland decoupled its currency to the euro and lowered the deposit rate.

Gold had closed at 1276.50 following a brief intraday break above 1280, its highest level since September 2014. We look to the September 2nd open of 1286 as the next important level of
Resistance, followed by 1300 and 1320. Momentum indicators are increasingly bullish.

Gold regained its safe-haven mantle following a shocking and unforeseen decision by the Swiss Central Bank (SNB) to scrap its cap on the franc’s exchange rate against the euro.


After the SNB- Swiss National Bank dropped the bombshell on the markets Thursday morning, the prices of the precious metals had gone in one direction… UP.  In just two days, the price of gold was up $40 and silver $1.10.

Post this action, gold rose more than 2 percent to a 4 month high in Thursday. This was a result of the move by Switzerland to abandon its three-year cap on the franc sent global shares and bond yields into turmoil. 

Following the Swiss National Bank’s unprecedented move to abandon the franc’s peg to the euro, the country’s currency had appreciated sharply against the U.S. dollar. The surge in the Swiss franc…means it is now the most overvalued of all the developed market (DM) currencies in terms of the deviation of the real effective exchange rate from its 10-year average

The SNB has been under growing pressure to revisit the peg as speculation grows that the European Central Bank could introduce outright money-printing as early as next week, which could see the euro zone flooded with liquidity.
It looks as is the SNB decision has finally destroyed the notion of $800 gold ever again.

Furthermore, a Labor Department report released on Thursday showed that Jobless claims climbed by 19,000 to 316,000 in the week ended Jan. 10, the most since early September, from a revised 297,000 in the prior period.

Adding to it, the gold price climbed on Friday after a lackluster US inflation report had participants readjusting their timetable for the next Federal Reserve rate increase.

In data, the US consumer price index fell 0.4 percent last month, the biggest drop since December 2008, after sliding 0.3 percent in November. It also undershot the -0.3 percent forecast.

This goes directly against the Federals Reserve’s mandate to achieve inflation of around two percent as the reports imply a deflationary trend. Which further means that the fed may probably delay its rate increase as it would want to know that inflation is on track to hit this level before acting?
Additionally, deciding not to reduce stimulus in 2015 would also be consistent with a goal-oriented approach to the employment mandate.
Additionally, Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose to 717.15 tons on Friday from 707.59 tons from its previous close on Thursday.

Fall in equities and worries over Euro area political and debt issues might continue to help Bullion complex as a whole and mainly the yellow metal.
Next week we could see further volatility as the ECB are set to meet and it is widely expected they will announced a broad-based government bond purchases.
We stay with our moderate positive bias in Gold and advice buying on small dips.




- Previous blog - "Lot of Things To Smile About For Precious Metals"

http://riddisiddhibullionsltd.blogspot.in/2015/01/lots-ofthings-to-smile-about-for.html

GOLD INVESTORS BE CAUTIOUS!

                                        - Mr. Prithviraj Kothari : MD, RSBL(Riddisiddhi Bullions Ltd.)

                                 

On Friday, Gold prices were moving between small gains and small losses as the markets were quite calm as investors reined in their trading activity ahead of a long weekend in U.K. and the U.S. Spot gold was down 0.2% at $1,291.32 during trading hours where as silver was 0.3% lower at $19.391 an ounce. 

Through the week gold prices were held in a tight range between around $1280 and $1315. 

Gold prices remained low this week on strong dollar and the remarks released by the FED of a positive US economic recovery but with the Ukrainian elections Sunday, news out of the region may finally give the gold market the catalyst it needs to break through.

The market has been pulled between good news and bad news and this is what is given gold that pull and push. The big question and the reason why we are stuck in this range is the uncertainty about where to go next and need to determine what themes should be the overall driver for this sector at the moment. 

Global monetary factors in particular continue to favour gold.  In addition, geopolitical risk remains high, particularly as the Ukraine elections approach, and, longer-term, Russia and China cosy up, a significant long-term global game-changer to which Washington appears oblivious.

• Holdings in exchange traded products backed by physical gold continue to hit new 4½ year lows while physical demand may receive a boost from pent up Indian demand later this year when import restrictions are expected to be eased by the new government.
• In India, the government has just authorized seven more private agencies to import gold, thus easing gold import restrictions, which will lead to lower premiums and a rise in gold demand as the wedding and festive seasons will start in August. The easing out of the 80:20 rule is still a drag, however the relaxation to include the trading houses should be seen as a positive development. 
• The record high premiums that were being charged in the market have and will continue to drop drastically as supplies will be good. The premiums have fallen from record highs to nearly $40 which is expected to reduce to $25 as the time passes by. Usually 30-35 Tonnes of gold is imported, but With this rule relaxation, supply is expected to increase to  60-70 tonnes
• In Europe, the ECB is expected to ease monetary policy in the 5 June meeting as inflation is too low and economic growth is too slow at 0.2 percent in Q1
• According to a recent Bloomberg/CME Precious Metals Conference, the East holds the key to gold’s outlook. With China printing its money faster than mining its gold, consumers will continue to demand gold to protect them against inflation

To sum it up, gold prices have got glued to the $1300 level and until we see a critical shift in market dynamics such as correction in the equities market or some statement from the Fed or some escalation in crisis, we continue to see gold in this range.

Gold has been moving in this sideways pattern for over a month and has formed a wave like pattern.

Now what we need to watch for is more important-

• We will keep an eye on Ukraine’s 25 May presidential vote, 
• The U.S. April durable goods orders and March housing prices on 27 May, 
• The U.S. Q1 GDP second release and Japan April CPI and industrial production on 29 May, 
• The Philadelphia Fed President Plosser’s (FOMC voter) speech 
• The April U.S. Core PCE Price Index on 30 May. 

As per the current market trends gold is expected to range between $1272- $1310 in the international market and Rs.27,000- Rs.28,500 in the domestic market.

On the other hand silver is expected to move between  $18.85- $20.20 and Rs.39,500- Rs.41,500 in the international and domestic markets respectively.

The primary purpose of this blog (Prithviraj Kothari's view on Bullion Markets - MD, RSBL(Riddisiddhi Bullions Ltd.)) is to educate the masses of the current happenings in the Bullion world.

- Previous blog- "MODIfying India"

http://www.riddisiddhibullionsltd.blogspot.in/2014/05/modifying-india.html

MODIfying India

-By Mr. Prithviraj Kothari, MD, RSBL (RiddiSiddhi Bullions Ltd.)

Firstly, heartiest congratulations to Mr. Narendra Modi on his historic win. It was a time for celebration for entire India. messages, jokes, headlines etc were exchanged as Mr. Narendra Modi enjoyed a momentous win in the worlds largest democracy.

As India welcomes its most awaited PM with open arms, we saw Mr. Modi's effect extending across all assets class.

Friday at the prospect of a stable government led by Mr. Modi, whose own state, Gujarat, prospered under his leadership. stocks and the rupee jumped on optimism that Modi will make good on campaign promises to create jobs and attract foreign investment in all sectors except for multi-brand retail.

Indian rupee also benefited, strengthening to an 11-month high of 58.63 rupees to the U.S. dollar Friday. and Sensex sky rocketed at 25,000 (1400 points up.) while results were still being out.

This appreciation of the rupees pushed bullion prices down.

Gold and silver tumbled terribly on Friday. Though in the international market gold was at a weekly gain, in India , the prices declined as the rupee strengthened. Gold plunged almost 350 rupees and silver was down 825 rupees on the commodities exchange. Meanwhile, in the international market gold was playing a different move.

After dropping more than 1 percent on Wednesday, spot gold prices gained on Thursday as investors digested comments by Federal Reserve chair person that central banks are in no rush to reduce the size of its balance sheet. 

The yellow metal was also supported by escalation of geo-political tensions as pro-Moscow separatists in eastern Ukraine ignored a call by Russian President Vladimir Putin to postpone a referendum on self-rule, a move that could lead to war. However, comments from European Central Bank President Mario Draghi's that the bank may act to stem falling inflation at its June meeting knocked the euro and the strength in dollar capped sharp gains in prices.

Gold prices fell on Thursday on positive US unemployment claims data which weakened the precious metals complex while dollar strength added to the bearish sentiments.

Stronger growth is expected post the poor winter growth. backed up by data this week showing strong housing starts and an uptick in consumer prices, might move up the Fed's plans for raising benchmark interest rates from near zero.

Half of the sates in US now have unemployment rates below 6 per cent. This figure shows that the jobs market in US is improving but at a slow pace. While employers in 39 states added jobs, we see that hiring too is picking up well.

On Friday, Gold saw slight gains in Asia before it fell to $1291.95  and then bounced back to $1296.09 in the next four hours of trade, but it then dropped to a new session low of $1288.02 after  housing data was released and the yellow metal ended with a loss of 0.19%.  Silver slipped to as low as $19.271 and ended with a loss of 0.62%.

The Economy

Report	For	Reading	Expected	Previous
Housing Starts	Apr	1072K	975K	947K
Building Permits	Apr	1080K	1008K	1000K
Michigan Sentiment	May	81.8	84.5	84.1

Source- http://news.goldseek.com/GoldSeeker/1400271241.php

For now, the gold market’s key drivers are, first and foremost, the flow of U.S. economic indicators as they affect expectations about prospective Federal Reserve monetary policy . . . and, second, of a more temporary nature, the ebb and flow of geopolitical anxieties arising from events in and around Ukraine.

Now that India has formed  a stable government and that the world picture is minutely fading and getting clear, market players are once again expected a rally in gold prices.

Reasons Being- 

Import duty reforms in India- The his morning, for example, as I write the news has come through that India’s ruling Congress party has conceded defeat in the world’s biggest democratic election to Narendra Modi’s BJP which may even win enough votes to take power on its own without its coalition partners. The BJP is thought to be more sympathetic to gold and could repeal, or reduce, the import restrictions that have led to India falling from first place as the world’s biggest gold consumer. 

This will lead to a rise in demand for gold from India which in turn will push gold prices high.

Physical Demand- Demand for gold from China is also expected to provide support for gold. This factor will give gold a wild card entry into the bulls market. over the next three to five years the demand from Asia and, also from Central Banks which have been buying gold rather than selling it over the past couple of years, will actually be sufficient to drive the gold price higher.

U.S. Economy- Many traders expect the US economy to deteriorate further which will compel the Fed to rethink about its policy prospects. The recent statistical improvement in the U.S. economy is little more than a bounce back from the past winter’s weather-induced economic chill. 

As a more realistic view of economic prospects takes hold, the financial markets will re-assess expectations of Fed policy – and this could be the catalyst triggering a resumption of gold’s long-term bull market. 

At the same time, equities are due for a setback – perhaps mild, more likely not so gentle. Either way, the competition for investment funds between equities and gold – a competition that equities have won in recent years – will shift increasingly toward bullion

when we expect to see a deterioration in the economic indicators and a reassessment of Fed policy prospects.

De- Dollarization- Russia is actively pushing on with plans to put the US dollar in the rear-view mirror and replace it with a dollar-free system. Or, as it is called in Russia, a “de-dollarized” world.

Russian Ministry of Finance wants to reduce the share of dollar denominated transactions and is hence ready to green light a plan to radically in the role of Russian ruble in export operations. Dollar will then be replaced by gold. This too will give a support to gold prices.

Geo-political tensions in Russia-  as we all know, tensions in Russia can escalate any moment thus increase the chances of a war. Any spark in the geo-political crisis in Russia will shoot up gold prices.

Meanwhile, gold is expected to range between $1272 to $1310 in the international market and Rs. 28,000- Rs.29,000 in the domestic market. 

On the other hand silver is expected to range between $18.80-$20.00 and Rs.40,000- Rs.42,500 in the international and domestic markets respectively.

The primary purpose of this blog (Prithviraj Kothari's view on Bullion Markets - MD, RSBL(Riddisiddhi Bullions Ltd.)) is to educate the masses of the current happenings in the Bullion world.

- Previous blog- "Gold on a see-saw"

http://www.riddisiddhibullionsltd.blogspot.in/2014/05/gold-on-see-saw.html