Gold Likely To Be Pushed Into The Positive Territory

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

A Favourable Environment Has Emerged For Gold

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

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

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

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

Investors digested a batch of mostly weaker-than-expected U.S. data, which could cement expectations for interest-rate cuts from the Fed.

• The Philadelphia Fed said its gauge of business activity fell to 5.6 in October from 12 in September
• Economists polled by Econoday expecting a 7.1 reading and a report on industrial production from the Federal Reserve fell 0.4% in September, marking the biggest drop since April.
• Data showed that U.S. housing starts slid to an annual rate of 1.26 million last month from a revised 1.39 million in August
• Initial weekly jobless claims increased by 4,000 to 214,000.

According to some analysts, the disappointing economic data continues to support market expectations that the Federal Reserve will cut interest rates at the end of the month.

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

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

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

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

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

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

Gold Continues To Ride The Bulls

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Upcoming Fed Meet Important For Gold

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

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

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

The gold prices were on a rise in Europe on Mario Draghi’s loosening moves at the ECB, but was not allowed to stay above the $1,500 level it regained there (indeed it rose to above $1,520 at one stage) and was taken down to $1,498 by the market close in the U.S.  The fall seems to have been due to renewed optimism on some kind of trade talks agreement with China is on the cards after news from, later denied by, the Trump Administration that the U.S. might go easier on tariffs on Chinese imports.

De-escalation of the tensions between the world’s two largest economies (the United States and China) have led investors to take out the money from the safe-haven asset gold and move towards risk assets.

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

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

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

Some key indicators are pointing toward an economic slowdown:

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

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

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

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

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

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

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

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

Play Cautiously and Take Utmost Care While Trading

Gold prices have risen nearly 16% this year, and by around $ 100 an ounce this week, as investors turned to the precious metal seen as a safe haven amid the bruising US-China trade and currency war.

As the week opened, PBOC of China fixed Yuan at 6.97% against the dollar and Trump and US Fed commented that China is acting as a currency manipulator. As mentioned previously that whatever Trump has done against China in its history is the worst trade war of this decade. There was obvious that pain boomeranged into the US markets and Dow slipped nearly 750 points on Monday- the worst single-day fall of 2019. And big time sufferers are US companies and global economies as they are on the verge of recession.

Gold hit $1485 and that was a major target that I made clear over the time and now this parabolic rise should stop unless China does something nasty to un-nerve.

The dimming global economic outlook, fuelled by heightening trade tensions between the U.S. and China are boosting gold’s appeal as a hedge against financial turmoil.

Gold is likely to show higher volatility and now overall range is expected to be $1500-$1550.

Despite Chinas commitment, the PBOC fixed Yuan at a higher level and fixed USD/CNY at 7.05% on Wednesday. Gold is once again moving to new calendar year highs and it hit $15 higher. Now gold is also behaving like currency when there is a losing streak for USD as the global currency status. These are extraordinary times and no matter how the USD index or the US data comes out, there is next big leg of rally possible on both.

On Thursday, gold showed an intraday volatility of +3%. This kind of fluctuation exhibited in the global markets too. Meanwhile gold hit 5.5 years high of %1522 and also made the single biggest gain of 3 years at 17.25. Moreover, the US-China trade war has been intensifying in a slightly uglier manner and this is adding fuel to the rally in gold prices.

Gold is at a record-breaking high in the domestic markets too. Gold prices on Thursday soared past the Rs 38,000-mark for or the first time rising Rs 550 to hit a fresh high of  Rs 38,470 per 10gm here in the capital.  In Mumbai, agency reports pegged the price of 10gm of standard gold (99.5 purity) at Rs 37,091, while pure gold (99.9 purity) cost Rs 37,240 on Thursday.

Gold remains relevant given the elevated economic and geopolitical risks. Investors will continue to shift their strategic portfolio positions in favor of gold. But Our Managing Director, Prithviraj Kothari advises all the investors to play cautiously and take utmost care while trading in these high volatile patterns.