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Showing posts with label Prithviraj Kothari Blog. Show all posts
Showing posts with label Prithviraj Kothari Blog. Show all posts

Tuesday, 16 June 2020

Bullish vs Bearish sentiments for gold

Recession and pandemic have been good supporters for gold this year. Gold has advanced 16.7% since March 2019. Simultaneously the dollar has dropped 6.8%

All this while, gold continued to find additional support from some of the bearish factors including concerns over a second wave of infections, and raised geopolitical uncertainty.

This week too, gold found support over Federal Reserve statements. Fed ruled out any rate hikes for the next couple of years. On Wednesday, the Fed announced that it is keeping its key interest rate unchanged at a range between zero and 0.25% while signalling no rate hikes through 2022. The Fed also said it expects U.S. GDP to contract by 6.5% this year.  Simultaneously it boosted expectations that [quantitative easing] will be in operation for the time being.

In response, gold prices rallied, reaching slightly above $1,750 an ounce on Thursday while equities saw major losses. This move benefited gold as an accommodative monetary policy is negative for the yields and for dollar, while positive for the yellow metal hence gold managed to pull through the mid-range resistance band of $1700/$1725.

Any form of strong financial stimulus is made with the intention of boosting the economy. Now given the situation, the market is once again divided into bears vs. bulls for gold.
The ones, who are bearish, have cautioned that gold will remain in a tight range. Currently it has been sustained by stimulus measures world over and hence it will require a very strong influencer to pull it back into a higher range.

The Fed’s extreme money printing igniting these unstable stock-market heights is worryingly inflationary, making upping gold portfolio allocations essential.  This ongoing capital shift is likely to keep pushing gold higher. RiddiSiddhi Bullions Limited is positive that gold prices are likely to trade higher for the most part of the year.

But still many investors continue to remain in a dilemma about portfolio diversification per se gold.

Now for the ones who are bullish believe that gold is being constantly supported by the current geopolitical crisis. There has been news that the number of U.S. coronavirus infections were rising, with recent reports indicating that Arizona and Texas are showing increased cases. Moreover, worries of a new wave of COVID-19 cases clouded hopes of economic recovery.

Just when China was grounding itself towards economic recovery, it once again saw fresh Covid cases resurfacing. After weeks with almost no new coronavirus infections, Beijing has recorded dozens of new cases in recent days.  And if this was not enough, US too witnessed Covid hospitalization in record numbers.

Further, The World Bank released its latest economic outlook and global GDP which is now predicted to fall by 5.2% this year. The recession could be the worst since the Second World War. Certainly, lockdowns are being eased and central banks and governments have pledged huge sums of money to support their economies. However, the economic recovery will take quite some time and even a slightest onset of a second wave of Covid infections, will once again create a panic like situation believes Mr Prithviraj Kothari of RSBL.

This comes amid enormous federal rescue efforts, with the Treasury Department aiming to borrow $3 trillion to cover the tab. To bolster the government’s campaign, the Federal Reserve intends to buy enormous amounts of the new Treasury bond supply. This manoeuvre is called quantitative easing (QE), which also is aimed at holding down interest rates.

Friday, 12 June 2020

Investors remain bullish for gold

Gold bounced sharply from its mid-March lows as central banks slashed interest rates and launched quantitative easing, while governments undertook massive stimulus measures, in an effort to combat an economic slowdown prompted by the COVID-19 pandemic. However, gold has been largely range-bound for nearly two months now.

Investors as well as industry experts like RSBL continue to remain bullish for gold mainly due to the following reasons-

  • FED - QE is “huge positive” for gold since it means a low “opportunity cost” of holding the metal. This refers to any interest income lost by holding a non-yielding asset such as precious metals instead of bonds. The Federal Reserve (Fed) will face numerous challenges in the months and years ahead. Economic output will remain below potential for years to come as we deal with the pandemic and its long-term scarring effects. An additional challenge will be a U.S. federal government budget deficit that will exceed $3 trillion this year with significant likelihood that it could be larger.                                                                                                      
  • Unemployment numbers and S&P weak earning and its effect on interest rates - Unemployment is expected to remain high and S&P companies to continue posting weaker earnings. This would lead to lower (or increasingly negative) real interest rates, which is positive for gold. Absent further action by the Fed, the deluge of Treasury securities will likely start pushing interest rates higher, threatening the overall economic expansion. The Fed cannot allow this to happen.  As I gaze into my crystal ball, the Fed’s roadmap is likely to include the following progression of policy tools as the economy remains mired in a protracted downturn                                                                                                                                                          
  • US Economy - With the Fed going all-in on financing the government deficit, the U.S. dollar could be at risk to negative speculation of its status as the dominant global reserve currency. Investing in gold may help offset this trend.                                                                                                                                                          
  • Fiscal and monetary stimulus programs across U.S., Europe, China and other countries - this action is but obvious given the damage that COVID-19 has caused globally. As we move towards the path of recovery, which will definitely be slow, gold is expected to benefit from this.                                                                                                                                                          
  • Equities - For one thing, the relief rally in equities is likely to eventually run out of steam. The economy still faces challenges, one of which is the potential for a second wave of COVID-19 infection which will further strengthen gold prices.
Gold has always been investors favourite because of its following features-
  • Historical position
  • Long term store of value
  • Performance during times of crisis
  • Effective portfolio diversifier
  • High liquidity asset
Due to this, gold has gained more prominence every time the global markets face uncertainty. And we think this sentiment will carry through in late 2020-2021 says RiddiSiddhi Bullions Limited.

Gold prices should comfortably break through $1,800 an ounce, whenever the sharp rally in equities stalls,  when gold ran up to its record high above $1,920 an ounce back in 2011, the market was in “bubble-like conditions” that did not last long before the buying dried up. But in the current situation, many more economies around the globe have been impacted, meaning a recovery will take longer, in turn meaning gold buying should be more sustained.

Tuesday, 9 June 2020

Geopolitical crisis still remains on the cards for gold

Gold has been a major beneficiary of a weak dollar and low US interest rates over the last three weeks and this looks likely to change in the short-term. The yield on the 10-year US benchmark is nearing 1%, up from 0.65% a week ago, dulling the appeal of the precious metal, while the US dollar basket may have found a temporary base around 96.50 after having fallen by four big figures since mid-May. Bullion has declined about 3% last week, on track for its biggest fall since the week ending March 13.

Gold prices dipped more than 2% on Friday as investors’ hopes of a rebound in the global economy got a boost from stronger-than-expected U.S. non-farm payrolls data, reducing demand for safe havens.

RiddiSiddhi Bullions Limited opines that a record surge in US employment on Friday sent gold into a tail spin and back to lows seen at the beginning of May. Just over 2.5 million jobs were added in May compared to market expectations of 8 million lost jobs, the largest month of job creation since the data series began. Last month the US economy lost just over 20 million jobs. Today’s positive data boost added to an already upbeat market tone and helped push gold back into the early $1,680s, its lowest level since May 2.

The May payrolls report confounded economists who had predicted a job loss of 8 million in May as the coronavirus kept parts of the U.S. economy closed for a third straight month.

The report also jarred with separate data released a day earlier by the Labour Department, which said it received weekly unemployment claims for the first time from 1.9 million Americans, bringing to nearly 43 million the number receiving jobless insurance since the Covid-19 hit home in March. Gold prices jumped 1% on Thursday, reacting to the jobless claims numbers.

We had significantly stronger-than-expected U.S. payroll numbers - an increase of 2.5 million versus an expectation of a decline of 7.5 million - that 10-million swing has brought forward expectations of the economic recovery in the United States.

A kick-start to another rally in the gold price remains elusive. The market’s confidence that the most acute stage of the pandemic has passed in many countries has seen risk appetite improve. With investors now betting stimulus measures will bridge the gap to more normal growth. RSBL is positive and has hopes pinned to an improved economy.
The central bank has injected massive stimulus and cut interest rates to near zero to cushion the blow from the coronavirus pandemic. The Federal Reserve, the U.S. Treasury and Congress have jointly approved and disbursed trillions of dollars in loans, grants and outright aid to businesses and individuals in recent months because of the Covid-19-triggered economic downturn.

But investors still remain bullish over the medium-term. Prithviraj Kothari and many other top gold dealers in India believe that Gold might not get much more support from the Fed, but geopolitical risks, second wave concerns, and an eventually weaker U.S. dollar should keep the longer-term bullish outlook intact The macro backdrop is challenging, despite market confidence in the trend towards normalised growth. The expansion of central banks’ balance sheets shows no sign of abating, while geopolitical tensions escalate.

The otherwise safe-haven known as gold is rallying right alongside an equities markets surprisingly chock-full of momentum even as protests sweep the U.S. and deaths from COVID-19 continue to climb.

Some analysts, however, remained optimistic that gold would regain some upward momentum in the near-term despite the risk rally in stocks.

The reason being uncertainty- geopolitical issues and trade tensions (in the U.S) still remain on the cards and for the longer term these factors will definitely influence gold prices positively and those who strongly believe this and are still favouring gold are expected to benefit in the long run.

Sunday, 7 June 2020

Gold - A simple investment in complicated times

As the last decade draws to a close, gold has once again demonstrated its safe haven status  and alerted the keen observer that the general situation in the financial markets is about to change fundamentally.
Gold is a clear balance to stocks, bonds and alternative assets for well-balanced investor portfolios. As a store of wealth and a multi-faceted hedge, gold has outperformed many major asset classes while providing strong performance in both rising and falling markets. Bullion dealers in India are optimistic about the continued run of gold as a safe haven for investors.

Gold can add value to your portfolio in more than one way-
  • It gives long term returns
  • When times are uncertain , gold acts as an effective diversifier
  • It is very high on liquidity 
  • It strikes a perfect balance and improves overall portfolio performance

The market continues to struggle with the elevated level of market optimism versus the real economy, creating a psychological mismatch. And while the anarchy is the US street is likely to be a short-term phenomenon believes Prithviraj Kothari from RSBL.

Gold was supported over concerns about the unrest in the United States and at the moment appear to be weighing on market sentiment along with rising tensions between the world’s top two economies.

Gold pared gains on Thursday, having risen 1% earlier in the session, pressured by an advance in Wall Street, but escalating tensions between the United States and China kept the bullion supported. Spot gold rose 0.2% to $1,712.35 per ounce during Thursdays trading hours.

Gold prices were, however, supported by fresh signs of the economic blow from the coronavirus, as well as brewing U.S.-China tensions with the Trump administration looking at options to punish China over its tightening grip on Hong Kong.  We're seeing tensions increase between U.S. and China. We see the market froth still with this bevy of negative economic data and that's clearly supportive for the gold market said the bullion king of India.

Protesters have flooded the streets in the United States over the death of George Floyd in police custody, in a wave of outrage sweeping a politically and racially divided nation.
The closely packed crowds and demonstrators not wearing masks have sparked fears of a resurgence of COVID-19, which has killed more than 101,000 Americans.
Rioting in major US metropolitan neighbourhoods got pretty gnarly over the weekend.

Adding to it were the underperforming jobless numbers coming in from the US. The latest U.S. unemployment benefits data held above 2 million last week for a 10th straight week, signalling a deeper economic hit from the pandemic. Hence investors believe that more stimuli is expected from the Federal Reserve and other central banks
Large stimulus measures tend to support gold, which is often considered a hedge against inflation and currency debasement.
Meanwhile, in Asia, China’s state media and the Hong Kong government lashed out on Sunday at U.S. President Donald Trump’s pledge to end Hong Kong’s special status if Beijing imposes new national security laws on the city.

Gold is often used as a safe store of value during times of political and financial uncertainty.
Geo political risk remains supportive amid a plethora of bullish for gold themes while anarchy in the street in the US could dent the nascent recovery. But gold investors are also taking more that early re-opening states are seeing a rebound in new cases.

On May 30, California increased 3273 claims, the highest one day increase ever. Texas increased in 1714 cases. On the margin, the United States: three-day growth of infection numbers increased to 4.2%, the highest in 1-week (vs. 3.4% three-days ago).

Gold rallied right out the gate, going higher as anarchy in the streets is not only threatening to derail the re-opening optimism but could severely dent President Trump’s approval ratings, which will heighten US election risk and could drive more demand for gold.

Gold has come down off its recent highs to trade somewhere in the middle of the range it’s been in since mid-April. This has caused many traders and investors to begin to question whether they should start looking for dips to buy, or whether there is a further downside in store for the precious metal. We’re now halfway into the year and barring any other significant global events in H2 it’s almost certain that 2020 will be remembered as the year of the virus. The question remains, though, will 2021 be the year of the recovery?

Friday, 5 June 2020

Gold continues to strengthen in second half of 2020

Gold is always considered as a valuable diversifies in times of economic and geopolitical uncertainty

A couple of months ago, the economic upswing was still firmly established, production expanded, and unemployment was declining. It all changed with the advent of the coronavirus or, to be precise: things turned really sour with the politically dictated lockdowns. As a reaction to the spread of the virus, governments in many countries ordered shops and firms to shut down and people to stay home. The inevitable result was a close-to-complete breakdown of the economic system. Whether it were smalls MSEs or giants like RSBL businesses were hit completely and so were the lives of hundreds of millions of people who were thrown into outright despair; in India alone 120 million workers lost their jobs in April 2020.

In US too, jobs numbers weren’t quite appealing.  Even though the U.S. ADP private jobs reports were stronger than expected for May and there was a decline in initial jobless claims. Still investors believe that the numbers won’t remain positive for long. RiddiSiddhi Bullions Limited agreed with the numbers projected by a survey of Bloomberg. Nonfarm payrolls are expected to drop by 7.5 million in May (compared with a 2.76 million private job losses estimated by ADP) and jobless rate is anticipated to jump to 19.1% from 14.7% in April, as per the Bloomberg's survey estimates.

Further, the precious metal was lifted by the European Central Bank's decision to expand its pandemic emergency purchase programme by 600 billion Euros

According to the bullion King of India, if the world economy continues to slip into weakness, then we can expect gold to hit a record high in the second half of 2020. A challenging economic environment and an increase in risk appetite has been a strengthening headwind for the yellow metal.

Tuesday, 26 May 2020

Where everything else is falling, Gold seems to pretty tempting

History has proved time and again that following major factors have always sent triggers and brought about a rally in gold prices

  • Financial market cyclicality 
  • Economic crisis.
  • Geopolitical stress.
  • Monetary instability.

Any one of these four factors possesses the power to drive gold prices here. But today, we don’t have to choose — all four are combining to trigger the gold-buying impulse.
One virus was enough to trigger all of the above factors.

Furthermore the extraordinary 12-month gold-price bull run shows no sign of ending. Despite predictions of a bubble set to burst, the yellow metal has risen by 36% during the past 12 months says Bullion king of India. Gold prices ended higher on Friday as testiness between the U.S. and China fed risk-off sentiment, drawing investors into assets considered to be havens, including government debt and the Japanese yen.
Further to the above factors, even drivers of money flow into safe haven assets and also support gold. Lately, the gold has been moving majorly due to the following reasons-

US-China tension escalation- The Wall Street Journal on Thursday reported that U.S. senators were introducing a bipartisan bill that would sanction Chinese officials and entities that enforce the new Hong Kong laws, and penalize banks that do business with the entities.
With the crisis in Hong Kong picking up, stock markets in Asia and the U.S. declined, resulting in “safe haven buying for both gold and silver.

The U.S. has threatened a very harsh retaliation if China challenges Hong Kong’s autonomy, which then could lead to U.S. implementing more tariffs. Those tensions aren’t likely to influence gold for long as the market tends to overreact once news hits, but still gold prices are bound to go up regardless of that giving hope to the top gold dealer in India.

Concern of second wave crisis drove money flow into safe haven assets- the immediate reason gold is finding support came from testimony to the Senate Banking Committee earlier this week by US Treasury Secretary Steve Mnuchin and Jerome Powell, chair of the country’s central bank, the Federal Reserve. According to the Seattle Times, Mr Mnuchin emphasised re-opening American workplaces to get the economy moving again, while Mr Powell suggested more stimulus measures may be needed which is why central banks have been pumping money into the markets.

Supply demand- This time around, the coronavirus is causing interruption on an unprecedented scale, including the supply of physical gold says RiddiSiddhi Bullions Limited. Three of Europe’s biggest gold refineries are based in the Swiss canton of Ticino. On March 24, cantonal authorities ordered all three refineries to close.

This perfect storm of a strangled supply and soaring demand has led some analysts to speculate that gold prices could reach an all-time high in 2020 – over $1920, which the current high is reached in August 2011.

Except, there’s plenty of evidence that this time is different, and gold could even outperform its previous rallies during market uncertainty. Consider that during previous major stock market crashes, such as the 2008 financial crisis or Black Monday in 1987, there were no other externalities affecting the price of gold, which was purely driven by supply and demand

However, analysts said continuing plans to reopen economies that have been frozen by the COVID-19 pandemic and hope for remedies for the virus have limited the upside in precious metals, sending gold lower for the week.

There was a slight slip on Monday morning as gold prices price lost 1.23% in early trading to stand at $1,735.25 an ounce. But the pattern of recent months has been decisively upwards, making it difficult to predict further for the bullion dealers in India.

The economic unease caused by the COVID-19 situation has prompted many investors to consider moving their assets into gold. But with the masses all thinking the same thing, what’s the market outlook for the yellow metal?
Interest in the metal has been growing recently in light of the pandemic as one of the safest and most resilient assets for investors. Russia, however, started to build up its reserves long before the crisis emerged.

Russia has become a saviour of the global gold markets as the pandemic has spurred abnormally high demand for the precious metal while it has at the same time also crippled companies' ability to produce gold in the amounts requested by market players

During that fateful mid-March week, gold prices also took a beating as investors fled to liquidate all assets. The price of one troy ounce of gold fell from a high of above $1670 on March 9 to below $1470 nine days later.
If you’d bought gold back in 2018 when it was trading around $1200, that represents returns of 50%. Even at the current prices, the all-time high would provide a return of over 12%. In a market where everything else is falling, those numbers appear to be pretty tempting says Prithviraj Kothari RSBL.

Friday, 22 May 2020

Gold Prices stomping back

Last Friday, gold prices hit their highest level since September 2012, at $1,762 and reaching record highs in many other currencies.
Gold prices were seen storming back towards their mid-Aril highs, with investor appetite up amid sustained market volatility.

Gold’s rise is amazing in that Japan and Europe are deep in a recession with their stock markets tanking, and the U.S. is just entering a recession, with most other major asset classes falling – except gold.

Gold prices settled higher Wednesday for a second session, as economic stimulus measures boosted demand for the precious metal against the backdrop of economies attempting to reopen from the COVID-19 pandemic giving bullion dealers in India some hope.

Precious metals gained after Fed Chair Powell’s bearish comments. Federal Reserve Chairman Jerome Powell told lawmakers the Fed was looking at extending access to the credit facilities to additional borrowers, including states with smaller populations.
The Senate committee was warned by the head of the central bank that the current downturn is considerably worse than any recession since World War II and that long-term unemployment could damage the economy.

This means that the path to economic recovery will extremely difficult and slow says RSBL. Which is why, he reiterated his commitment to use a full range of tools to support the economy, including leaving interest rates near zero until the economy is back on track. This saw safe haven buying remain strong, with gold prices pushing back towards USD1,750/oz. This will surely brig about a rally in gold prices, which was already being witnessed during this week which looks promising for top gold dealer in India.

Furthermore, demand for insurance against heightened uncertainty could help sustain the recent upward move in gold prices, and duly has revised its forward price projections. Here’s also a now-famous prediction of Bank of America for $3,000 gold by the end of 2021, with their equally famous four-word response to the printing-press paper profusion: “Fed Can’t Print Gold.”

A renewed outbreak of COVID-19 in Northwest China rattled investors. Authorities have subsequently reinstated lockdown measures for 108m people in provinces, including Jilin and Liaoning

Elevated uncertainties linked to the flood of liquidity into the financial system and the increase in global debt, coupled with elevated geopolitical uncertainties, may further increase safe-haven demand for gold says RiddiSiddhi Bullions Limited.

Wednesday, 20 May 2020

Gold Set to rally on Diversification Demand

The gold price has reached its highest level in almost eight years due to financial market concerns about the corona crisis. The price of the precious metal is on the rise this year as investors are looking for safe havens to invest in because of viruses giving hope to the top gold dealer in India.
Gold rose to the highest in more than seven years after the Federal Reserve said stocks and asset prices could suffer a significant hit from the coronavirus pandemic, and warned the process of economic recovery may stretch through until the end of next year.
On one side , national Economic council Director Larry Kudlow said on Friday that U.S and China were working on implementing the deal and on the other hand , U.S President Donald Trump declared that he was “not thrilled” with the phase one U.S.-China trade deal reached in January

And if that was not enough, the Trump administration blocked chip supplies to Huawei Technologies, with investors on edge fir a reported possible Chinese retaliation.

The price of a troy ounce of gold (31.1 grams) is now around $ 1760, the highest level since October 2012. The price continued to rise following warnings from President Jerome Powell of the US Federal Reserve about the economic damage caused by the corona virus can cause.

Gold and silver broke higher this week as we started to see the dreadful damage done to the global economy from many weeks of inactivity. Precious metals look set to rally further on safe-haven and diversification demand making bullion dealers in India hopeful.

Monday’s gain in gold came in after data released Friday underscored how hard virus-related shutdowns have hit the world’s largest economy. U.S. retail sales and factory output registered the steepest declines on record in April.

The coming months are likely to see a wave of bankruptcies, major negative corporate earnings revisions and with that, the risk that unemployment will remain stubbornly high. Self-imposed social distancing will keep the whole experience industry from travelling and exhibitions, to restaurants and cinemas under pressure for months to come.

Furthermore, Commercial real estate could be among the hardest-hit industries should the health crisis deepen, the U.S. central bank said in its twice-yearly financial stability report Friday. Separately, Chairman Jerome Powell said in an interview with CBS that a full recovery of the U.S. economy could drag through 2021 and depends on the delivery of a vaccine.
Meanwhile, U.S. Federal Reserve Chair Jerome Powell warned in a “60 Minutes” interview that the U.S. economy could shrink up to 30% in the second quarter. Although the U.S. could avoid a second Great Depression in the long run, a full recovery would depend of the development of a vaccine.
Powell also added that the Fed was willing to deploy more ammunition to aid in economic recovery if needed.

Bullion has surged 16% this year as the spread of the virus curbed economic growth, roiled markets, and prompted vast amounts of stimulus to be unleashed by governments and central banks says RiddiSiddhi Bullions Limited.

For the firm believers of bullish sentiment for gold, here are some key analyses by Bullion king of India that will strengthen their belief further-

1. Firstly, we have central banks cutting interest rates and heading to zero or lower. The Swiss National Bank, the European Central Bank and the Bank of Japan all currently have negative interest rates. For many countries, where inflation levels are higher than interest rates levels money in the bank will simply lose value year on year. Therefore, investors who have moved into cash will be looking to place their cash in a safe haven.

2. Following more than a month of range bound trading, gold finally managed to break the shackles that had kept it tied to $1700/oz. Renewed stock market weakness, a warning about the outlook from the U.S. Federal Reserve and a continued surge in the number of people joining the jobless queue are just some of the recent drivers.  In the last three recessions gold has increased in value, so as a hedge for a recession gold does have strong appeal.

3. Furthermore with large scale quantitative easing (QE) programmes undertaken by central banks around the world and some analysts anxious about high stock valuations, gold offers a hedge against such devaluing risk. QE devalues a currency, so money is literally losing value. This is why many analysts would recommend have a portion of your portfolio in gold. History may not be repeated, but the fundamental outlook for gold is currently very strong.

4. Souring U.S.-China relationship, as well as other bleak news, will lead investors to turn to the safe-haven yellow metal.

The Covid-19 pandemic remains very difficult to beat and it carries the risk of re-emerging in places where it had been knocked back. While still not under control in many countries, the U.S. and others risk a prolonged impact with some states or regions attempting to reopen before having the virus under control. RSBL gold says that the recovery is probably set to be more problematic than the optimists think, with gold set to benefit from the enormous boost to money supply that is going to follow.

Tuesday, 12 May 2020

Everyone wants to own gold

Gold does very well as a calamity hedge, and I think we would all agree that this is definitely a calamity right now.

In times of uncertainty, economic and otherwise, gold is considered a safe haven investment, a fact which is further being corroborated by the current movement of gold prices and demand for all forms of gold investments, be it bullion, paper gold, spots and futures says Prithviraj Kothari RSBL.
Gold performs well in any situation- inflation or deflation. We need not worry. And currently, we all know that a ton of money has been pumped into the market for recovery.
And when you look at the stock market over the last few weeks, the stock market’s gotten boastful giving bullion dealers in India some good news.
But, the yellow metal, the traditional haven of choice, has increasingly found its fate in the greenback as a competitor over the past two years when calamity struck, whether it was Covid-19 outbreaks, tumbles on Wall Street or breakdown in U.S.-China trade endeavours. The dollar and the yellow metal were considered to be inversely proportional to each other.
The same phenomenon was on a display again on Monday as both U.S. gold futures and the spot price of gold fell under the $1,700 support level, while the dollar index regained its balance on above the key 100-point mark critical to dollar bulls.

The US dollar strengthened on Monday as appetite for the US dollar as safe-haven currency increased amid concerns over economic reopening.

Gold prices extend the rebound making it look positive for the investors and the top gold dealer in India, as the risk-off sentiment seeped into Europe amid fears over the second wave of the coronavirus outbreak and escalating Australian-China trade tensions.
The dollar has been a major barrier for gold. Gold prices are very much into a consolidation phase, thanks to the US dollar.

Furthermore, The White House is suffering a mini-outbreak of Covid-19 with Vice President Mike Pence’s Press Secretary Katie Miller testing positive, while Anthony Fauci and Robert Reid, two other senior health officials on the coronavirus task force, are on self-quarantine, according to reports. Pence and President Donald Trump have tested negative so far.
On the global front, both China and South Korea reported new spikes in coronavirus cases, with Seoul recording 34 new cases, its biggest single-day jump in about a month. In Germany, the closely-watched reproduction rate Covid-19 had climbed to 1.1, meaning 10 people with the virus could infect on average 11 others.

The US dollar strengthened on Monday as appetite for the US dollar as safe-haven currency increased amid concerns over economic reopening.

Events in Korea over the weekend brought a reminder of the risks of second waves of coronavirus infections, with Seoul closing down all nightclubs after 34 new infections were tracked down to one club.

But there remain much fear in the market about how the post Covid-19 recovery will play out, none more so than assessing the challenges economies face removing restrictions amid the coronavirus pandemic.

With many countries in the West attempting to reopen their economies, attention has turned to whether new infection rates will remain low as mobility picks up.

A recent study by the World Gold Council (WGC) found that gold figures in the top five investments; people are investing more in the yellow. On average people invested 28 per cent of their income in gold in 2016, which has gone and up to 33 per cent in 2019. It also found that most people preferred to invest in gold due to "ease of buying" which has kept the top gold dealer in India positive even in these difficult times.

In the domestic market too there are renewed worries of India’s fiscal and further possible lockdown only going to deteriorate this. The ballooning fiscal deficit moved to staggering 5.5%+. This is the real dilemma for the Government of India- to arrange the deficit as high as 4.75 lac crore- which seems difficult as the GST and al otter taxes are depleting fast.

The concern surrounding an upward creep in real interest rates, as an extremely weak economy forces price expectations lower while the Fed stays steadfast to its commitment to keep Fed Funds above zero, also contributed in reducing length.
The escalating tensions between U and China will give sudden pop-up rally to gold from$1700-$1715 initially and later maybe $1730 but a stop is crucial at $1688.

All this suggests that you may want to own gold for what’s happening now. It would certainly help if you had gold in your portfolio for the grim economic events that are yet to unfold. And you clearly want to own gold for those things we hope that never happens says RiddiSiddhi Bullions Limited.

Friday, 8 May 2020

Second wave of Covid-19 creates panic

We are currently facing a plethora of seemingly enormously adverse economic data being released by governmental statistical entities, and this data is likely to get worse before it gets better.  Indicators like unemployment levels, PMI readings, retail sales figures, manufacturing output etc, are all continuing to get worse.

We're going into a recession. We don't know how deep it will be or how long it will be. Debt is increasing. Governments are having massive increases in debt to raise the funds to get through this crisis. So, there's an awful lot of uncertainty in the market going forward. Gold doesn't pay any interest, but with interest rates at zero or even negative in Europe and Japan, gold is now competitive with interest-bearing instruments says Prithviraj Kothari RSBL.

U.S private sector ADB job losses were worst in this sector, for the month of April .Though this came broadly on expected lines, there was a big panic since for over 8 weeks now.  US government and U.S. Fed, both are putting in massive stimulus to avert this nightmare situation.

Gold price recovered Monday from last week’s drop as investors keep embracing safe-haven assets during a tumultuous economic environment hit by the covid-19 pandemic giving top gold dealer in India some hope.
The logistics of transporting physical gold have also been impacted by the pandemic, with the precious metals industry scrambling to keep the market moving. Transportation costs have surged about 60% as a result of the worldwide lockdowns, increasing the premiums paid for metals.

As we see a gradual easing of all the restrictions and businesses start to reopen, that will certainly have an impact on precious metals prices says RiddiSiddhi Bullions Limited. WHO and CDS fear a significant danger of a second COVID-19 wave and if at all that happens, gold prices will rally giving bullion dealers in India assurance.

Gold is becoming attractive in this environment where uncertainty is very high, growth is expected to weaken, and at the same time you have negative real rates which make gold attractive to hold as a diversifier in investor portfolios
The surge in gold is set to continue with a test of $1800 the next big round number in sight

Tuesday, 5 May 2020

Growing potential for gold to cross $1800

Gold opened on a positive note this week, as US President Donald Trump threatened to impose more tariffs against China over the coronavirus pandemic, which Trump alleged originated from a lab in China.

The uptick in geopolitical risks is the primary catalyst due to renewed US-Sino tension after the White House put China in the crosshairs. On Friday, after a White House press conference, President Trump said that he had a high degree of confidence that the Covid-19 pandemic originated in a laboratory in Wuhan, while simultaneously threatening sweeping tariff retaliation towards China.

Post Mr. Trump’s statement, fresh trade tensions began to haunt global market. It raised the safe haven appeal for gold all over again. In fact Trump and other government officials restated their allegations that China failed to alert other countries about the pandemic in time and was responsible for the rampant spread of the virus worldwide. Trump stated last week that he was exploring ways to retaliate against China for spreading the virus globally and hiking tariffs was one option under consideration.

Moving onto Covid -19 and how the path of recovery would be. Gold has also turned bullish after Fed officials highlighted long-term risks to economic recovery if the US is not careful about resuming economic activity in the aftermath of the pandemic. Despite rolling out several stimulus measures, the US central bank has hinted that it could unveil more efforts to support economic recovery in the US, a sign that once again serves to boost the safe haven appeal of gold.

Gold has also gained on the back of disappointing economic data releases from Japan in the Asian session, with Tokyo’s consumer prices experiencing the first decline in three years during April. Meanwhile, the Japanese manufacturing sector continues in contraction on account of the coronavirus pandemic.

The COVID-19 pandemic has brought a pause to economic activity around the world. The coronavirus crisis has killed hundreds of thousands, incapacitated millions and affected the livelihoods of billions, prompting policy makers to fear a deflation spiral reminiscent of the Great Depression

The US, a key driver of the global economy, now accounts for a third of global infections and deaths related to COVID-19, exceeding 1 million infections and 60,000 deaths. US jobless claims have already exceeded 30 million, driving unemployment to 15% or higher. This data has propelled the gold price remains high. The unprecedented fiscal and monetary expansion by governments and central banks has boosted investment demand for gold, as liquidity floods the financial markets and reduces the opportunity cost for gold investors.

The interest rates close to zero continue to favour the upside for gold by keeping real rates in negative territory for now. Gold faces serious demand headwinds from a lack of consumer spending in China and India, but healthy investor appetite is propping up demand at present.
That comes as investor interest continues to grow in this environment of uncertainty and negative real rates. And in these situations, gold always becomes an investors favourite says Bullion King of India.

As the scale of the pandemic — and its potential economic impact — started to emerge, investors sought safe-haven assets.
Large government expenditure to stimulate “flagging economies” hit by Covid-19 has raised concerns over debt in a future without the virus.
Steps needed to keep workers safe will mean even businesses that are able to restart production will generally be running at low capacity, and most will be operating in an environment of greatly reduced demand.

Last week, the World Gold Council released its first quarter 2020 demand trends report for the precious metal, where it highlighted that the global coronavirus outbreak was “the single biggest factor influencing gold demand. Bullion dealers in India are certain that this might not drastically affect gold. Rather gold is becoming attractive in this environment where uncertainty is very high, growth is expected to weaken, and at the same time you have negative real rates which make gold attractive to hold as a diversifier in investor portfolios and good news for top gold dealers in India.

Gold is strengthening as stocks pull back amid concerns about “restarting” many states amid the COVID-19 pandemic and with markets even more concerned with the U.S. hardening its stance against China again, with the threat of tariffs that could derail Chinese purchases. Amidst all this there’s “growing potential” for the price of gold says RiddiSiddhi Bullions Limited to break $1,800 per ounce.

Saturday, 2 May 2020

The path to recovery will be gradual

We have seen that gold has been moving sideways since early April taking everyone including the top gold dealer in India on a ride. It is trading above Feb-March highs, but it looks like a consolidation within a medium-term uptrend for the yellow metal.

On one side it has managed to cross some important levels, on the other side it’s struggling to hold above the measured base objective at $1700/05/ Moreover, the upside momentum is weakening near-term and the threat of a consolidation phase is growing.

The main reason for this kind of behaviour in gold as suggested by the Bullion king of India, Prithviraj Kothari is the on-going USD funding crunch that is holding financial markets hostage at the moment. As a result, gold was sold off alongside the equities melt-down as global investors rushed to raise cash in order to make up for the losses.

But if we see the longer perspective, we can say that once this USD funding crunch dissipates after 2Q, gold should respond well to the massive amount of global monetary policy easing. By then, there is significant default risk as the global economy slows down drastically. Hence, gold’s safe haven role should return with a vengeance. Furthermore, recent global lockdowns have resulted in a shortage of physical gold as global transportation links get cut. As such, we would expect Gold to rebound significantly in the quarters ahead giving bullion dealers in India reassurance.

But currently, the broader picture speaks about world economies especially US. The global GDP is down almost 3.5-4%. Though the situation wont remain the same forever, but one thing is clear is that the path of recovery will be gradual and that it is going to be very hard for the next few quarters, at least across all the commodities, with maybe gold being the exception .

One more thing that catches attention is gold supply. Of late, mining capacity has suffered a setback due to COVID 19 and the lockdown situations globally. We all know that in times of uncertainties, demand for the yellow metal rises says Riddi Siddhi Bullions Limited. The same is going to happen soon but physical availability of gold is limited.
We've seen central bank buying and with interest rates the way they are, and the investment demand and the bullion side and ETFs being extremely strong, it could very well be very hard to source physical gold to where it's needed.

But with interest rates and carry costs the way they are, keeping gold in vaults will make a lot of sense, people will buy it as a hedge and insurance, and therefore there might be some scarcity that we haven't really seen before, where the flows from vaults into the physical market would not occur as readily.
Hence we can say the slowly growing economies, increased demand and restricted supply, combined together will play a pivotal role in influencing gold prices.

What is clear is that COVID-19 has resulted in sudden falls in global economies and commodities markets, with supply disruptions on a global scale never witnessed before. The resulting shockwaves have produced a great deal of uncertainty in terms of the future global growth outlook, and this includes the outlook for commodities.

Tuesday, 28 April 2020

Gold continues to remain in demand

Last week passed in a much quiet phase for the world. It was rumoured that North Korean President was unwell, but later his spokesperson confirmed that he is alive and in good health. While crude did not receive much good news pertaining to demand and overflow, gold had a pretty stable week and an amazing monthly rally as gold began its journey at $1590 and gained nearly 8-9%, touching $1730 on Thursday.

Gold has continued to play its role as a safe haven, as central banks and governments have announced massive amounts of support for economies in lockdown, but this should now be in the price.

While the broader macro backdrop remains supportive for gold prices in the near term, real yields are being tracked more closely. Safe-haven buying has continued to support gold primarily through ETF inflows and continued retail investor demand. So if we see different economies starting to reopen, we might see some of that safe haven demand starting to ease.

U.S. unemployment is at a totally unprecedented, and unpredicted, 16.5 % of the workforce and may yet rise further, although moves to re-open a very limited section of the economy could mean this could soon be stagnating. On one side there is optimism the US economic figures will improve, but on the other side there is fear that the virus may not get contained and can spread further.

The U.S. economy tends to be the driver for the rest of the world but world virus data is at least equally alarming. Globally total COVID-19 known infections have already hit 3 million, with more than 210,000 deaths.  True, Asian and European figures – and even those in the U.S. - could already have peaked and be beginning on a downwards path, but the virus incidence in Africa and parts of Central and South America, where health systems are supposedly less able to cope with the virus spread, may only just be beginning.

 There’s also a chance of a second wave of infections if, and when, lockdown measures are eased, or if there is resurgence in the northern winter months.  COVID-19 is likely to be with us for some time yet and poses an enormous continuing threat to the global economy and to what we consider to be our normal way of life.

Prithviraj Kothari says that Investors now shift their focus to a U.S. Federal Reserve meeting ending on Wednesday and a European Central Bank (ECB) meeting on Thursday as major central banks once again take the stage as the global economy grapples with blows inflicted by the COVID-19 outbreak.

Even when the lockdown is lifted, the world will still be far from any kind of normality. The bigger risk then is economic collapse which brings in tension for the bullion dealers in India. But gold tends to benefit from widespread stimulus measures as it is often seen as a hedge against inflation and currency debasement.

Any kind of recovery will be gradual and gold will benefit from this prolonged phase of weakness which gives the top gold dealer in India reassurance. Economic indicators reveal that the numbers won’t be pleasing and that after lock down is eased we might face an economic collapse. We very well know that governments around the world are doing their best to spend parallel sums of money to boost the economy. Central banks have been pushing enough stimuli to keep the markets alive.

And hence even in the long term, Gold should remain in demand as a crisis currency in this environment which makes the future brighter for the yellow metal says RiddiSiddhi Bullions Limited.

Friday, 24 April 2020

Akshaya Tritiya 2020

Akshaya Tritiya will be celebrated across the country on Sunday, 26th April, 2020. But this year celebrations will be locked indoors given the pandemic situation. Akshaya Tritiya is considered to be a very auspicious day to buy gold and silver.

Economically this day is quite productive for marketers as they cash in on the festivity to boost their sales. Marketers indulge in high voltage advertisement campaigns especially the jewellery stores. In fact people in India and overseas book jewellery in advance and take delivery on Akshaya Tritiya day. It’s a day of frenzy buying for all precious metals especially gold. Sales on Akshaya Tritiya day usually increases four to five times compared to normal days, said a top gold dealer in India.

After Dhanteras, Akshaya Tritiya has been considered a festival where gold is bought in huge numbers. But this year, as the country witnesses a national lockdown, sales will be damp, remarked one of the bullion dealers in India.

He further explains that Akshaya Tritiya, which falls this year on April 26, is a lost opportunity for jewellers due to the nationwide lockdown. Jewellery sales have come to a standstill, he added. Factories are closed resulting in a massive loss for jewellery manufacturers and retailers. There were many weddings that were lined up in the month of May. But due to cancellations of public gatherings like weddings, jewellers won’t be able to cash in on the festive season.

It is almost a month since the lockdown was first announced and jewellery shops remain shut. Many fear they will not be able to capitalise on the huge opportunity to boost their revenues in a month traditionally known for the highest demand for ornaments.

Jewellers are concerned about the increasing financial stress this would cause them as they haven't done business since March. To make matters worse gold prices were ruling high at a time most Indians consider inauspicious for buying gold. All were well stocked to meet demand after this inauspicious period ended, when a large part of the off-take is usually attributed to the spike in marriages and the auspicious period of Akshaya Tritiya. However, with the current liquidity crisis, jewellers fear that whenever they are allowed to raise their shutters, customers will rush to sell their gold holdings in order to generate cash, commented Mr Prithviraj Kothari, Managing Director of RiddhiSiddhi Bullions Limited.

There are jewellers who are accepting bookings, but all deliveries are expected to be processed after the lockdown.

With offices shut and lack of liquidity in markets, sales figures will not even be close to impressive. World over the pandemic has affected all possible markets and precious metals have also not been spared.

We saw gold performing extremely well as the year started. In fact, jewellers in India were expecting to have good sales figures in the current years Akshaya Tritiya. But no one had ever predicted this drastic dip in global growth.

The precious metals markets, especially jewellers, will suffer a huge setback and it will take a long time for things to get back on track, concluded the ‘Bullion King Of India’.

But for the ones who are really keen to buy gold on Sunday, they need not worry as the option of buying gold online(in the form of ETF)  is always open, said an executive at RSBL. Sadly, physical gold shops will be shut and online would be the only choice available for gold buyers.

Thursday, 23 April 2020

Stay With Gold

Since 20th March gold prices have rallied in a spectacular manner. They have not only made up for the price weakness earlier in March, but even set a new high on 14 April (still far below the all-time of USD 1,921 on 6 September 2011). Spot gold has surged more than 10% this year, reaching an around 7-1/2 year high of $1,746.50 on April 14, as the coronavirus pandemic roiled global markets and central banks unleashed a wave of monetary stimulus’s.

In the wake of the rapid spread of the new coronavirus throughout the world, gold gained significant ground due to panic. Bullion dealers in India and around the global markets believed that gold might cross $2000 per ounce given that the situation is getting worse worldwide.

However, on the other hand, we see economies pumping in stimulus and planning to reopen soon after the lockdown. This is boosting confidence in investors of a faster economic recovery world over, commented a top gold dealer in India on the condition of anonymity.

There were constant warnings regarding potential for a major hit to the U.S. and global economies since February 1st when U.S. virus cases were in single figures and President Trump pontificated that it would rapidly fade away completely in America.  However, by the start of this weekend, the U.S. has recorded over 700,000 virus cases, rising at around 30,000 daily and more than 37,000 deaths.  This works out at 3.7 times the number of cases which have occurred in Spain, the second most affected country according to official statistics (although true Chinese figures remain suspect) and nearly twice the number of deaths.

However the U.S. population is far higher than that of any European nation and in terms of cases and deaths per million people, the U.S. is still well below similar figures for the most affected European countries, but the overall figure is still rising rapidly, while those in most of Europe appear to be diminishing.   At the current rate of infections and deaths, the U.S. could reach 1 million known virus cases and 50,000 deaths by the end of the current month.

Despite the alarming figures, Friday saw a big uptick in global equities and the gold price dropped back below $1,700 for the first time in the week.  Global equities picked up quite strongly on Friday and, as they did so, safe-haven assets like gold and silver fell back – equally sharply.  This was prompted, no doubt, by President Trump’s statement on getting America back to work in some less-affected states and reports that the drug, Remdesivir, was showing good results in controlling the virus in already-affected patients.

However, it is up to the state governors to order reductions of the lockdown restrictions and relaxations. Some less affected states, however, with mostly agricultural communities, may see some return to work fairly quickly, but overall the economy will remain in the grip of the virus for some months to come. Recovery will definitely be gradual and slow.

Currently, Gold has been moving to and fro, following a series of events that have been constantly influencing its prices.

Supply constraints- when gold prices were close to the previous low around USD 1,450 per ounce, there were signs of a shortage in the physical gold market. The temporary closing of three gold refineries in Switzerland was a major reason for these constraints. As a result, it was more difficult for investors to get their hand on physical gold.

Support level- the level of USD 1,450 per ounce has been an important support in the past. As gold prices failed to move below this level after several attempts, investors became convinced that this was a good buying opportunity.

Monetary Policy- the Fed used its full array to fight the shortage in the dollar market and to support the economy. The Fed announced unlimited asset purchases to replace the previous $700bn commitment. This has driven the balance sheet much higher. Other central banks have also eased monetary policy substantially. Aggressive monetary policy easing sounds like music to the ears of gold investors, especially as official rates and government bond yields are unlikely to rise substantially in the coming years and real yields to stay low or move even lower.

Financial stimulus- Investors have become optimistic regarding the current pandemic. There is optimism amongst investors that the world has already seen the worst scenarios in the COVID 19 crisis and that the current recession will be short-lived. Many banks announced monetary and fiscal stimulus across the globe, combined with some improvement in the number of Covid-19 casualties in countries that have been in lockdown have resulted in some optimism among investors. Gold prices have weathered well in a risk-on environment, so they have rallied in tandem with US stocks (see graph on the left below). As risk-off sentiment eased, the dollar has declined, and this has also been a support to gold prices.

Overall, therefore, the near term outlook for general economic growth looks to be dreadful, but (for gold) the outlook for more debt, more liquidity, and potentially an increase in the likelihood of inflationary pressures growing, looks positive for the price – at least in dollar terms.  We also see the longer-term negative economic outlook as keeping the equities extremely vulnerable for the foreseeable future.

We at RiddhiSiddhi Bullions Limited also think that a lot of investors will re-evaluate the gold positions they have or the positions they would like to have. One of the subject experts at RSBL recommends staying with gold as a primary wealth protection investment.  Improvement in investor sentiment, aggressive monetary policy easing, ultra-low interest rates and fiscal stimulus has all supported gold prices.

Tuesday, 21 April 2020

Gold's future looks bright

With uncertainty surrounding the world economy because of the coronavirus and crude oil price crash, gold prices have been a rollercoaster throughout the start of 2020.

Spot bullion is trading around $1 720 -- close to a more than seven-year high -- and is forecast by numerous banks to extend gains as the impact of the virus pushes economies toward recession and prompts action from central banks. Those factors are adding to what was already a strong outlook, with rising demand among middle-class consumers in China and India and signs of supply constraints, commented a top gold dealer in India.

On the other hand, the current crisis results not only from a negative supply shock but also from a negative demand shock pointed one of the bullion dealers in India. As a result of uncertainty, people cling to cash and forego unnecessary expenses. In addition, social distancing means reduced household spending on many goods and services, which exerts deflationary pressure. The most prominent example I would say is the recent crude oil price crash. The price has temporarily dropped below $0 a barrel (this was partly due to the contract for West Texas Intermediate crude). Lower fuel prices will translate into lower CPI inflation rate. Entrepreneurs, especially those with large stocks of goods, will probably lower prices to encourage shopping. Moreover, the appreciation of the US dollar means lower prices of imported goods.

Many of my peers at RSBL and industry friends are afraid that the coronavirus crisis will spur inflation. And they are right  After all, the increased demand for food and hygiene products raised the prices of these goods. Moreover, supply-side disruptions can reduce the availability of many goods, contributing to their increasing prices I am afraid.

The US CPI inflation rate declined 0.4 percent in March, following a 0.1 percent increase in February. It was the largest monthly decline since January 2015. The decrease was mainly driven by a sharp decline in the gasoline prices. However, the core CPI rate, which excludes energy and food prices, also decreased in March - by 0.1 percent (versus 0.2 percent rise in February), which was its first monthly decline since January 2010.

Gold prices consolidated around the $1,750 mark on Thursday, extending a recent pattern that has seen them rally on risk-friendly news and outperform on more bearish developments. spot gold  was up 0.6% at $1,724.45 an ounce, outperforming the futures contract after the U.S. Mint closed its West Point facility due to the coronavirus.

Havens were in favor again after another immense number for U.S. initial jobless claims, which fell only slightly from the previous week to 5.245 million. The U.S. economy has now lost more than 20 million jobs in a month due to the pandemic.

What will happen to gold irrespective of inflation or deflation? I would say Gold has always been a safe-haven asset and it does shine during both inflationary and deflationary periods. After all, gold also rallied in the aftermath of the Lehman Brothers' bankruptcy, when the economy plunged into deflation for a while. Why one would ask? Experts at RiddhiSiddhi Bullions Limited say that gold's price is also sensitive to market sentiment and risk aversion. Then, gold is no one's liability. So, when deflation is accompanied by significant economic worries and a loss of confidence in the US dollar, gold may shine. Anyway, gold's future - in a world of negative real interest rates, elevated risk aversion and high public debt - looks bright.

Monday, 13 April 2020

Time to keep a watch on gold supply disruption

Gold has been shining all the way, ever since Covid-19 became a pandemic. There was great volatility witnessed the world over, wherein prices climbed to their highest level since 2012.

Though we did see gold prices moving a bit lower during the past few weeks, the virus scare kept the rally in gold alive. On one side gold is being considered as a safe haven asset and on the other side, it is being oversold in order to cover up the losses incurred in the stock market, commented a  top gold dealer in India. It’s being pulled from both the sides.

The Covid-19 outbreak has had a major impact on the gold market, bringing massive price swings as investors react to new developments related to the pandemic.

The World Health Organization officially declared Covid-19 a pandemic on March 11, but gold prices didn’t immediately rally as many expected, even as the hit to the global economy became apparent with the closure of schools and businesses around the world.

That’s because gold generally goes through a shakeout of weak hands before reaching new highs.

Currently, the U.S dollar is considered the strongest fiat currency, while gold has broken out into new all-time highs against the other currencies.

Gold had reached an all-time intraday high of $1923.70 on September 6, 2011. Last week, on Thursday, gold was just $171 an ounce away from this high as it settled at $1752.80.
Gold did drop a bit on Friday, but it still remained very well supported.

We saw a lot of pumping in during the week by major world economies-

  • In a bid to keep the economy afloat amid the outbreak, which had forced 16.8 million Americans to file for unemployment benefits since the week ended March 21; the Fed on Thursday announced a broad, $2.3 trillion stimulus package.                                                         
  • European Union finance ministers also agreed on half-a-trillion Euros worth of economic support but left open the question of how to finance recovery in the bloc headed for a steep recession.

Subject experts at RiddhiSiddhi Bullions Limited stated that any form of stimulus attracts gold. It improves the opportunity cost for holding the yellow metal.

Meanwhile, major physical bullion dealers in India saw activity dwindle last week due to coronavirus-led restrictions, with strained supply chains cut off from soaring safe-haven demand in some regions.

Supply disruptions have been a growing worry as governments around the world are shutting down businesses deemed as nonessential. Three of the world’s largest gold refineries—Valcambi, Argor-Heraeus and PAMP—have suspended production in Switzerland for at least a week on the back of mandatory closure of nonessential industry in the country to prevent the spread of coronavirus, said a senior-level executive at RSBL.

The problem is there are logistical issues moving metals around, so you cannot satisfy supplies of gold from one area and bring to another
The hunt for existing gold supplies in the near-term threatens to create significant issues with various markets that cannot connect with one another easily. There’s the possibility here of longer supply chain disruptions, which will make the odds grow that more interest in existing Comex inventories will be demanded. Even we at RisddhiSiddhi Bullions are finding it difficult to move around RSBL Gold.

Currently, we don’t see economies reviving up that fast, at least not for the current calendar year. A hold above $1,700 would be very constructive in terms of giving [gold] a boost up to the all-time highs. Hence there could possibly be an acceleration in buying pressure on gold. All said and done, it is a great time to buy gold equities which were sold off with general equities in the rush to meet margin calls.

Meanwhile, in the domestic markets, especially the prices shall keep reflecting higher growth in gold compared to Global Comex as the depreciating rupee factor shall play a role.

The rupee which was trading at Rs72/$ odd average rate in March has spiked to an average rate to Rs 74-76/$ levels which indicates that the price of USDINR pair shall keep giving support to the yellow metal despite a global fall.

I believe that one should allocate at least 25 percent of your portfolio in Gold ETFs, and another 30 percent in cash till a cure for COVID-19 is found, or lockdown is removed.

Monday, 6 April 2020

Pumping of liquidity pumps up gold prices

The coronavirus, which emerged in China late last year, has turned into a global pandemic that has claimed lives of over 70,000 people and paralysed large wraps of the global economy.

From a spark in prices, gold did witness a minor correction as it dipped in March. According to the Bullion King of India; Mr Prithviraj Kothari, the decline in gold prices in March can primarily be attributed to two reasons.

  • Investors were selling everything including equities, bonds and precious metals owing to the panic caused by an unprecedented non-financial hazard — the coronavirus — to global financial markets.
  • Partial or full lockdowns by various governments to enforce social distancing in order to curb the spread of the virus, raised concerns about gold mining.

As per the sentiments of bullion dealers in India, gold continues to receive support as all central banks are trying to inject more liquidity into the system with their easy monetary policies.

FED- Fed has reduced the benchmark interest rate to zero.  A top official at the U.S. Federal Reserve on Sunday said the $2.3 trillion economic relief bill approved by Congress was appropriately sized and that a further relief effort may not be needed if support efforts are well executed.

The ECB and the Bank of Japan- they are maintaining a negative interest rate policy for a long time. Japan’s PM Shinzo Abe is set to declare a state of emergency soon as the number of confirmed cases in Tokyo soars past the 1,000 mark. In addition, things remain tense in Britain with the death toll nearing 5,000 even as PM Boris Johnson gets hospitalized due to coronavirus. Lower interest rates decrease the opportunity cost of holding non-yielding bullion, making gold cheaper for investors holding other currencies

However, post the dip in gold prices in March, the precious yellow metal regained momentum after President Donald Trump told U.S. citizens to prepare for “very, very painful two weeks” on Mar 31. Moreover, weak economic data dented market participants' confidence, commented one of the top gold dealer in India.

Gold prices rallied to erase three-quarters of this week's earlier $60 drop Thursday in lunchtime, rising to $1612 per ounce as US stock markets rose despite weekly claims for jobless benefits setting their second new all-time record in a row amid the fast-worsening Coronavirus Crisis.

The initial jobless claims by the Americans skyrocketed to a historic high of nearly 10 million for two consecutive weeks ended Mar 21 and Mar 28. The United States has never lost more than 1.4 million jobs in any two successive weeks in its history. Moreover, U.S. auto sales declined to 11.4 million in March from 16.7 million in February.

After rising steadily for 113 consecutive months, job creation in the US witnessed a contraction during the month of March, with the US economy registering a loss of 701k jobs because of the shutdown of workplaces and factories across the country. This boosted the safe-haven appeal of gold as markets worry about the economic fallout from the pandemic and the rising risks of an upcoming recession not just in the US economy but also in the global economy.

However, gains in gold remained limited as the US dollar continued to make gains as a preferred safe haven currency despite the weak economic data from the US. The dollar shares a negative correlation with gold as a higher dollar makes it more expensive for holders of non-dollar currencies to purchase gold.
From a long term standpoint, gold will still remain the preferred asset as the environment of low-interest rates and virus-induced global slowdown would support a prolonged rally.

While equities tend to dominate the headlines, it has been the star performer of the past two decades. The graphic below shows how gold has outperformed both the Down Jones and the US Dollar since 2001. Gold is up 498% compared to the Dow up 98% and the dollar down 81%. Gold indeed remains a favourite

Gold continues to be in wait-and-see mode on how bad the global economy will get and how long will the depression-like conditions last.

Most traders would expect gold to be higher, after the payrolls data but “gold’s problem is that supply tightness is easing, and the dollar continues to grind higher. Ultimately gold will shine from the entire fiscal and monetary stimulus being pumped into markets globally.

The aggravation of coronavirus pandemic with each passing day has left investors scurrying for safe-haven assets as they remain apprehensive regarding the recovery of global economic growth and its consequent impact on stock markets. This, in turn, has triggered a demand for gold, which is considered as a key investment option during times of financial turbulence.

Wednesday, 1 April 2020

Gold fights back as the world fights back COVID-19

Over the past few weeks, Covid-19 has reached into the pandemic stage globally, and is creating havoc not only medically but also economically. We have seen Covid-19 evolve from a predominantly Chinese outbreak to a global crisis. As of 1st April, 2020, there have been nearly 859,929 confirmed cases and over 42,000 deaths across 203 countries, and these numbers continue to increase on a daily basis. Although China remains the hardest-hit country in absolute terms, relative to its population, more than 20 countries, most of them in Europe, have now surpassed it, the most affected being Italy.

Italy, Spain and France have already implemented aggressive containment measures that will undoubtedly affect their economies. Other nations may well follow suit, while individuals are also likely to increasingly exercise caution in their day-to-day activities.

Against this backdrop, further pressure on global growth seems inevitable. Investor anxiety towards that prospect will likely intensify this as far as market moves are concerned. In this environment, gold’s downside will at the very least be supported. Eventually, we expect a healthy rebound to appear, as the appetite for safe haven assets remains strong.

While China is back on its path of recovery and has finally announced movement of flights and opening of lockdowns, still world over countries continue to struggle this medical monster that has been one of the most lethal virus of all times.

According to the World Health Organisation, concerns about Covid-19’s ability to continue spreading have sent shock waves across markets. Equity prices around the world have suffered sharp declines and bond yields in key markets have collapsed to all-time lows. Industrial commodities have also come under pressure.
As a result, authorities in a number of countries have either implemented or promised monetary and fiscal interventions, which at times have offered some support. In spite of such efforts, risk aversion has continued to spread. Most notably, the 50 and 100 bps cuts by the US Federal Reserve on March 3 and March 15 respectively have done little to help US equity prices.
For a while, gold was one of the few beneficiaries, as investors have looked for safe haven assets to help diversify their portfolios. Since the beginning of February, gold exchange-traded fund (ETF) holdings have increased by more than 100 tonnes and in the first half of February, money managers’ net positions in Comex futures rose by nearly 180 tonnes, although more than a third of that was later sold off.
In turn, this fuelled a rally to a peak of $1,703, a level unseen since before the 2013 liquidations. Meanwhile, gold prices denominated in euro as well as a number of Asian currencies reached all-time highs.
But gradually as other markets crashed, we saw investors selling gold, in order to cover up losses made elsewhere. As panic selling eventually spread across all asset classes, safe haven assets also experienced heavy liquidations. Bond yields rebounded and gold prices collapsed.
Gold prices retreated again on Tuesday under pressure from end-of-quarter repositioning, but also from the awareness that emerging market central banks, having been keen buyers of gold in recent years, now have to push more out into the market to defend their currencies.
Gold prices dropped as much as 2.4pc on Tuesday as the dollar strengthened and strong Chinese economic data boosted risk appetite but bullion was heading for a sixth straight quarterly rise amid fears over a global shutdown due the coronavirus.
The combination of a strengthening dollar and better risk appetite is weighing on gold. The dollar index rose 0.8pc after posting a nearly 1pc gain overnight, as Japanese investors and companies rushed to cover a greenback shortage before their fiscal year ends.
Central banks around the world have announced major fiscal and monetary packages to try to limit the economic damage, as governments have extended lockdowns to combat the virus.
Major central banks moves seen this week-
  • The Central Bank of Ecuador said it had raised $300 million through a one-month gold swap which involved pledging 240 thousand ounces of its reserves.
  • On Monday, the central bank of Russia confirmed widely-held expectations in saying it would stop buying gold from domestic producers on April 1, a move that will bolster its reserves as it fights to stop the ruble depreciating too fast against the dollar and euro.
  • The CBR had already cut its purchases by around 40% last year as gold prices rallied to multiyear highs.
  • Strong Chinese factory data lifted world stocks on Tuesday but markets were heading their worst quarter since 2008, on jitters about the economic hit from the coronavirus
A further factor weighing on gold Tuesday was a second-straight day of gains for the dollar as it recovered its poise from last week’s selloff. A strong dollar drives up the price of gold in local currencies worldwide.
However, it is important to stress that even after these corrections, gold continued to significantly outperform other asset classes, most notably equities, where most major markets have suffered double-digit declines year-to-date.
Looking ahead, we believe the Covid-19 outbreak is likely to continue affecting global markets and, by implication, precious metals, at the very least for the next few weeks and likely the next two to three months. Although the rate at which confirmed cases are growing has slowed down significantly in China, it is accelerating across some key Western economies, notably the United States, Italy, France and Germany.
With central banks unleashing a tsunami of quantitative easing (QE) at a time when fear is running rampant in markets and (as) government debts are about to explode, it seems like the perfect cocktail that could push gold back to record highs.

Thursday, 26 March 2020

Gold Still Remains An Investors Favourite

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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