Time to Divert Our Attention Outside America

The precious metal is down 8% so far in 2018, and nearly 14% on an annualized basis - making it the worst-performing major asset class this year.

Gold has weakened this year alongside many emerging-market currencies because the dollar strengthened and US interest rates became more attractive. On August 13, gold fell below the key technical level of $1,200 an ounce for the first time since early 2017. It traded up 0.7% to $1,202.90 an ounce on Friday.

It may have gained by the end of the week, but it’s still a weak asset currently.  Spot gold was up one percent at $1,196.39 an ounce during Friday’s trading session, about 3 percent higher than last week’s 2018 low below $1,160.00.

Growing U.S. political uncertainty, reinforced by the legal woes of two of U.S. President Donald Trump’s former advisers this week, is keeping the dollar under pressure despite tighter U.S. monetary policy, analysts say.

By Friday, 27th August, gold prices saw a rally as investors took Powell’s speech as a more dovish stance, which seemed to rule out the need for a more aggressive tightening as he suggested a lack of inflationary pressure and put the warning for further gradual increases in interest rates on a continuation of current economic strength and a strong labor market.

In his speech, Powell indicated that there was no clear sign of an acceleration above the Fed’s 2% inflation objective and said there did not seem to be an elevated risk of the economy overheating.

Gold prices traded higher on Friday as Federal Reserve chairman Jerome Powell emphasized the central bank’s plans for gradual interest rate hikes would be conditioned on the continued strength of the U.S. economy and labor market.

Higher interest rates tend to weigh on demand for gold, which doesn’t bear interest, in favour of yield-bearing investments. The remarks also weighed on the dollar, extending the greenback’s losses and increasing the demand of the precious metal for holders of foreign currencies.
As the most recent FOMC statement indicates, if the strong growth in income and jobs continues, further gradual increases in the target range for the federal funds rate will likely be appropriate.

Gold is usually favoured as a safe haven during market turmoil, but even all the back and forth on trade between the US and China has not stirred up a bid for the metal as the dollar still hold strong.
The commodities market has been adversely impacted by the strong dollar and the discussion of a trade war possibility, which may already be happening. With the economies of America, Europe and Asia picking up, most investors are asking, why buy gold or silver? The dollar is the key. When it starts dropping, we will see the price of gold, silver and all commodities improve.

Many foreign governments and companies have borrowed in dollars, thinking the dollar will go lower relative to their own currencies. But the dollar has done the complete opposite. So now, these borrowers of $US are being squeezed as their borrowing costs have risen dramatically. This is creating financial distress in certain corners of the world. At these locations the price of gold will be seen climbing quickly.

But when will this happen? Will the dollar weaken? When will we see the gold prices going up? Will global uncertainties rise? There are many questions floating in the market currently.
And hence we all need to divert our attention to some of the developing problems that exist outside America and how it will impact America and furthermore the dollar.

Economic & Political Uncertainty key drivers for gold

Gold has now recovered from being negative to close higher on three occasions in as many days since Friday. The yellow metal’s has performed well since Friday’s jobs report was released. The precious metal has been supported above all by the dollar, which has remained under pressure. The greenback was unable to benefit meaningfully from Friday’s jobs report, which showed strong gains in non-farm employment and weak wage growth in February. On Tuesday, economic and political pressures were hitting dollar thus resulting in a weak performance.

The dollar has also been damaged by ongoing political concerns at the White House, which also had allusions for the stock markets as it elevated investor ambiguity.  Donald Trumps’ stand on international political issues mainly The Iran Nuclear deal and the North Korean regime changes are not seen with much respect globally.

Moreover, the appointment of Pompeo will be yet another supporter of Trump’s protectionist trade policies, which is what the stock markets worried about on Tuesday.

The highly anticipated Consumer Price Index measure of inflation for February failed to better expectations and after Friday’s weakness in wage growth, it underscored expectations that prices are not as hot as had been expected, decreasing the odds of aggressive rate hiking from the Federal Reserve. However, the Fed is highly likely – almost certain – to raise interest rates by 25 basis points next week

But it is not only about the current rate hike- what matters is the FOMC’s outlook for interest rates further into 2018 and beyond, which will be the main focal point for the markets. If recent data, including Tuesday’s relatively moderate inflation numbers, have helped to weaken policymakers’ urgency for higher interest rates then this could put further downward pressure on the dollar and support buck-denominated gold.

However, if the Fed turns out to be more in favour of higher interest rates, perhaps because of expectations that high levels of employment may lead to higher wages and therefore higher inflation in the future, then this could be the trigger for a dollar rally, and a gold sell-off.
Over the next few days, the $1300 per ounce mark will be tested for the yellow metal and in case gold prices recover again after the Fed meeting then markets remain bullish for gold.

Gold being bought on dips

Last week saw gold record its sharpest weekly gain in more than a year, as it fed off the dollar’s slump. As the week began, gold fell modestly on Monday in electronic trade, though in thinner action, as many traders took the day off for the Presidents Day holiday.

Gold prices were hit on Tuesday, with the commodity booking its sharpest daily decline in more than a year, against a backdrop of a strengthening dollar and stabilizing equities.

Gold seemed struggling to gain any grip and remained within striking distance of one-week lows. A strong follow-through US Dollar buying interest, further supported by a positive tone surrounding the US Treasury bond yields, continued to dampen demand for dollar-denominated commodities - like gold.

The precious metal dropped to an intraday low level of $1325 but further losses remained limited in wake of reviving safe-haven demand on the back of a sharp turnaround in European equity markets.

Precious metals lost ground as the dollar sprung higher following last week’s sharp decline, which has mostly extended a protracted downtrend for the commodity-pegged currency. A weaker dollar can boost commodities priced in dollars, because it makes them cheaper to buy for holders of other currencies.

Another turn-around in the dollar has weighed on gold, especially as it happened when gold prices were once again challenging recent highs.

The rebound, however, lacked any strong certainty amid expectations for a faster Fed monetary policy tightening cycle. Hence, the key focus would remain on the highly anticipated FOMC meeting minutes, which would help determine the next leg of a directional move for the non-yielding yellow metal.

Even though gold lost its lustre, market players saw this dip as a good buying opportunity. Exchange-traded funds increased holdings of gold and silver this week, reports Commerzbank.  Investors appear to be viewing the price slide as a buying prospect, as gold ETFs saw inflows of 2.7 tonnes

GOLD GLITTERS ALL THE WAY: RSBL

By Mr. Prithviraj Kothari, MD, RSBL 

As I mentioned last week in my blog that gold is regaining its safe haven appeal, this week we saw this sentiment strengthening further.

Gold was like literally all over the world this week as we saw the yellow metal gaining its safe haven appeal in its true sense after a long wait. Sentiment in the gold market remained sturdy after prices hit a one-year high in a figurative move.

This was the third consecutive week that gold witnessed positive gains, with increasing more than 5.3%- the biggest weekly percentage gain since late October 2011.

Analysts have noted that the yellow metal’s push back above $1,200 an ounce generated a lot of focus and positive sentiment among appalling investors looking for a safe-haven.

Many analysts are bullish on gold, expecting sentiment to continue to grow as prices have broken through key technical barriers, culminating in a weekly high at $1,263.90 an ounce.

Spot gold was last at $1,240.50/1,241.20 per ounce, having rallied around 22 percent since the start of the year.

The gold price rallied to a high on Thursday of $1,263.30 per ounce, up five percent and it’s strongest since February 6 last year when it peaked at $1,268.90.

Since this rally came in suddenly, there were many investors that missed on to bank on the gains. The speed of the rally and its strength suggest many would-be investors have been chasing prices, having not been able to take advantage earlier in the rally – they had lost faith in gold as a safe-haven given the four-year bear market.

This volatility was influenced by more than one factor. It was a combined effort of the following-

Dollar- Sentiment towards gold has changed dramatically, and gold has even moved up on some days in the face of a dollar rally. With a change in sentiment, those underweight or waiting on the sidelines started buying gold which furtherer fuelled gold prices.

The precious metal benefitted from a softer dollar, which had failed to attract safe-haven demand despite the global instability – the currency was last trading at a four-month low at $1.1349 against the euro.

A softer dollar is making gold more affordable for holders of other currencies – it has fallen around four percent this month, having already rallied strongly over the past 14 months – the dollar index climbed to 100.50 in December from around 70 in January last year and was last at 95.58.

Fed- As part of a two-day congressional hearing, Federal Reserve Chairwoman Janet Yellen attempted to reassure markets that US growth was steady and the labor market was improving.

Yellen and her fellow colleagues are being criticized for exacerbating the instability after raising rates in December – rates were static around 0 percent since December 2008.

And the US Federal Reserve, having raised rates in December for the first time in nine years, has not ruled out a push into negative territory. The chances of further rises this year have receded significantly, according to market consensus.

Because gold has no yield, it loses some of its luster when interest rates are rising. But negative interest rates negate this disadvantage while highlighting economic weakness against which gold is historically seen as a hedge and preferred as one of the safest modes of investments compared to its counterpart.

China- since the Chinese markets remained closed for the Lunar Celebration, there was nil reaction from that side and hence gold prices shot up one side.

With China absent from the market for its New Year holidays this week, the market now waits to see the reaction of Chinese investors upon their return on Monday, particularly as the US will be absent on this day for Presidents day.

All eyes will be glued to the return of the Chinese markets as investors are eager to see what they actually bring to the surface post this week’s volatile developments.

Equity- The gold price benefited from the meltdown in equity markets, as the yellow metal continued to hold around one-year highs. Weak equity markets have spooked investors and they promptly dumped risky assets and rushed to gold, which is seen as a safe-haven.

Other Economies-

Uncertainty about global growth and a mass sell-off in global equity markets unsettled investors, burnishing gold’s safe-haven qualities, while Japan, Switzerland, Sweden and Denmark have adopted negative interest rates.

European Central Bank (ECB) president Mario Draghi is expected to follow suit at the bank’s March meeting, citing inconsistent growth concerns and non-existent price increases.

Since the decision, Japan lowered deposit rates into negative territory and European Central Bank President Mario Draghi is expected to implement the same policy as soon as March.

Both economic regions are struggling with poor economic growth and non-existent inflation despite billions in easy money and years of near-zero interest rates.

Negative interest rates are generally good for gold as the improbability and agony linked with negative rates tends to surge interest in gold, but the more distinct shift of monetary policy in this direction by central banks is encouraging even greater flows into bullion.

Although it is a shortened week with markets closed Monday for Presidents Day, the U.S. economic calendar will be busy with the release of regional manufacturing reports, housing sector data, and the release of the Consumer Price Index for January.

While analysts are positive on the gold market, they are not ruling out some weakness at the start of the week.

The primary purpose of this article by Mr. Prithviraj Kothari is to educate the masses of the current happenings in the Bullion world.

- Previous blog -

" Gold Regaining Its Safe Haven Appeal: RSBL"

http://riddisiddhibullionsltd.blogspot.in/2016/02/gold-regaining-its-safe-haven-appeal.html 

MARKETS REMAIN CALM AS WE ENTER 2016: RSBL

 By Mr. Prithviraj Kothari, MD, RSBL

Firstly wishing you all a very happy new year. 

 

To begin with, United States, Europe, Japan and many other countries remained shut on account of New Year's Day and  hence markets were calm and serene market with volatility to its minimum.

Whatever fluctuation came in was mainly due to two reasons:

In the international market it was the data released from the US and in the domestic market it was the weakening rupee against the dollar.

Gold prices were also supported as weaker than expected economic data from United State likely to spurt safe haven demand for the yellow metal . Data released from the US was as follows-

• On Thursday, government data showed that the number ofmAmericans filing new claims for unemployment benefits rose sharply last week, a potential signal the job market was losing steam
•  Initial claims for state unemployment benefits rose 20,000 to a Seasonally adjusted 287,000 for the week ended Dec 26.
• US Chicago Purchasing Managers Index in December month fell to 42.9 compared to analysts' expectation of 49.8 and 48.7 a month ago, government data showed on Thursday.
• SPDR Gold Trust holdings dropped by 0.18% i.e. 1.19 tons to 642.37 tons on Thursday compared to 643.56 tons in previous trading day.
• After the SPDR Gold Trust reported outflows on Thursday, the harp gain in yellow metals was subdued as this outflow created a weak investment sentiment for gold on the market.

Gold prices fluctuated on Friday after the Indian rupee weakened against the dollar and on Exchange Trade Funds (ETFs) outflow, indicating subdued investment demand. Prices of the bullion were supported after the Indian rupee weakened against the dollar, denting prospects of higher imports. At 1:40PM dollar/rupee traded at Rs 66.21/$1 compared to previous close of Rs 66.15/$1.

Gold prices were also supported as weaker than expected economic data from United State likely to spurt safe haven demand for the yellow metals.

Prices of the precious metal were also supported by thin trading volumes as financial markets in United States, Europe, Japan and many other countries are shut on account of New Year's Day.

In short, Gold prices were supported by weak local currency while subdued investment demand capped the gain.


Now as we welcome 2016 with a bang we hope it has lots in store for the global economies and for the yellow metal precisely.

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 -

"Mr. Prithviraj Kothari, (MD, RSBL), makes gold price prediction for the year 2016

http://riddisiddhibullionsltd.blogspot.in/2016/01/mr-prithviraj-kothari-md-rsbl-makes.html 

GOLD FAILS TO ATTRACT SAFE HAVEN BUYING: RSBL

 By Mr. Prithviraj Kothari, MD, RSBL

The week began with a lot of geo political uncertainty and these rising tensions were expected to ignite gold prices.

But geopolitical tensions  took more of a backseat, with the minutes from the FOMC’s latest policy meeting set to be scrutinized later in the week for clues on the timing of a rate rises in the US.

The gold price had risen to a one-week high on Monday following Friday’s terrorist attacks in Paris, which fuelled safe-haven demand.

On Friday, 13 November, a coordinated terrorist plot in Paris led to over 100 deaths and hundreds injured. The Islamic State boasted and claimed responsibility for the deadly attack, which follows recent attacks by the organization in Lebanon and a suspected bombing of a Russian airliner.

French President Francis Hollande responded by launching a massive airstrike on the ISIS stronghold of Raqqa in Syria.

In tumultuous periods, gold harvests safe-haven appeal as investors seek physical assets like gold versus other investments like bonds or equities. 

However, Gold failed to attract safe-haven buying as a strong dollar offset geopolitical concerns. The dollar placed a cap on the market as it traded at a 7-month high.

Gold received only a small safe-haven lift from the terrorist attacks over the weekend in Paris and Beirut. It rose to $1,097 on Monday but those gains faded away as a strengthening dollar ended the rally. The dollar remained well-supported by broad expectations that the first US interest rate hike in nearly a decade could likely be initiated by the US Federal Reserve in December.

Gold prices dropped to a 5.5-year low on Tuesday, pressured in part by rallying U.S. and world stock markets early this week. 

U.S. economic data released Tuesday was a mixed bag thus leaving the markets confused.

• A heavy data day, US consumer price index month-over-month for October rose  0.2percent, in-line with expectations.
• The core CPI also increased 0.2 percent.
• The capacity utilization rate at 77.5 percent was as forecast.
• US industrial production over the same period dipped 0.2 percent, below the forecast 0.1 percent.
• The NAHB housing market index for November was 62, just missing the estimate of 64.
• The spot gold price was last at $1,081/1,081.30 per ounce, down $2.40 on Monday’s close.

While in the US, market players still expect the Federal Reserve to raise rates for the first time in nearly a decade at the mid-December Federal Open Market Committee (FOMC); Fed chairwoman Janet Yellen has argued for an increase in the Federal Funds rate before the end of the year, citing worries of prolonged periods of cheap capital and its long-term effects on the economy.

On Wednesday, investors’ focus shifted to the minutes from the FOMC’s October policy meeting.

Spot gold was last at $1,075.1/1,075.4 per ounce, up $3.50 on the Wednesday closing level.

Seventy percent of market participants believed the Fed will raise rates next month, according to the CME Group Fed Watch.

The minutes released showed that most members of the Federal Open Market Committee at the October meeting said the conditions for a rate rise could be met by December. A minority, however, said the data may not support a hike and suggested the Fed may need to add monetary stimulus if the economy unexpectedly slows.

The release of the minutes from the October FOMC meeting suggested that  it “could well be” time to raise short-term interest rates at the December policy meeting and as a result the committee chose to alter the wording of their policy statement to ensure their options were open for a move next month.

Gold prices climbed on Thursday morning in London as the dollar fell back even though a majority of US Federal Reserve members believe a December rate hike is becoming more appropriate.

Gold prices climbed on Friday morning in London, boosted by short-covering and fresh buying despite the October FOMC minutes suggesting the Fed will lift interest rates from December. But later in the day gold prices declined.

With the US essentially closed for half the week for Thanksgiving, it’s a quieter week for news and gold may continue to consolidate. All the potentially market impacting fundamental news is packed into Tuesday and Wednesday morning. The key report is U.S. GDP which could potentially impact gold through the U.S. dollar as it could impact speculation on a FOMC rate hike next month.