Gold Welcomes 2020 With A Bang

Since May, 2019 gold prices have been ticking high and it seems there is just no looking back. Last year gold prices were driven by recessionary indicators, economic volatility and geopolitical tensions.

Gold demonstrated impressive performance gaining over 17 percent in 2019 and continued to rally  on 31 December.

Major Eurasian nations, including Russia, China and India were seen boosting the yellow metals positions by acquiring and producing bullion.

Gold continued to rally in the current year too. It welcomed 2020 with a big bang. Gold was seen bouncing to fresh highs in a gap from $1551 to a high of $1587.93.

Last week we saw tensions escalating in the Middle East due to the killing of a leading Iranian commander in a US airstrike in Iraq. This brought about an elevation in gold prices following demand for this safe haven asset which is bound to benefit from this crisis.

The U.S.-ordered, and implemented, drone strike which killed Iran’s General Qasem Soleimani outside Baghdad Airport in Iraq had an immediately positive effect on the gold price.

The killing of General Soleimani, considered to be the second most important leader in Iran after Ayatollah Ali Khamenei, seems to have been nothing short of a U.S. state sanctioned assassination and will undoubtedly hugely increase tensions, and anti-American feelings in what is a hugely volatile part of the world.

The US drone strike which killed Major General Qassem Soleimani, head of the Quds Force, the Iranian Supreme Leader, Ayatollah Ali Khamenei, said harsh revenge awaited the (US) “criminals”. While US President Donald Trump said over the weekend, America is ready to strike 52 Iranian sites “very hard” if US assets are attacked.

Iran has promised severe revenge and looking from afar it would seem that the U.S. move is likely to increase the dangers for U.S. citizens and allies working in the Middle East and elsewhere in the world far more than any direct threats or actions from anti-American militants located anywhere.

Subsequently, the price of the yellow metal is holding in the $1,550s following a risk-off close on Friday in US benchmarks which moved back from their all-time peaks in response to Friday’s headlines.

This tense situation has come up suddenly. But what still remains in the basket for gold, that it really looks forward to as key influential factors-

• If there is no Iranian response immediately apparent apart from rhetoric one suspects there will be a correction next week – a view supported by the performance of gold mining stocks on Friday which fell back despite the huge boost in the gold price.

• It will be interesting to see whether demand picks up again in China and India this year, which could be key to gold price fundamentals, particularly if there is a slowdown in central bank and gold ETF purchases – not that we are expecting either to happen.

• The U.S. and its economic progress will probably remain the principal gold price driver in 2020, and this is somewhat uncertain at the moment.

• Government data tends to remain mixed and the price has been moving up and down accordingly.

• Likewise perceived progress, or otherwise. In the U.S./China trade negotiations will likely be a factor too.  We do expect a Phase 1 accord to be signed in 10 day’s time which could be another negative for the gold price – that is until the realisation sets in that the principal differences between the world’s two leading economies remain as far apart as ever.

• The U.S. Federal Reserve and its interest rate policies will also continue to be a price driver for gold, but unless it is seen as likely to diverge from its current cautious policy, and move interest rates up or down accordingly, the Fed may only have a relatively minor role to play as far as gold price influence is concerned in the year ahead.

The calendar year 2019 saw gold advancing 18 per cent — the highest return since CY2010, when it had generated a return of nearly 30 per cent. At this juncture, a break of 1590 opens risk to 1603 and 1632.

Comex gold is gaining its footings in past two years and from $1200 to 6 years high of $1565 that we saw in 2019. This was despite the fact that US and other global equities performed fairly good and hit life time highs. The bonds were also gaining similar tractions, with new geopolitical tensions like killing of the Iranian Commander Soleimani,  there could be a new risk premium opportunity for gold prices and may soon be seen surpassing CY2019 high of $1566 and headed towards $1600-$1625 initially. However this last $50 uptick in 2-3 sessions came from new buying from funds contouring new geo-political risks, so any easing will have an equal negative impact on gold prices.

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

Gold Outlook 2020

Year 2019 is about to end on a positive note for the yellow metal. Its shine and lustre was maintained as it almost finished the year 13 percent higher. This rally was majorly influenced by central banks, a deterioration and slow growing global economy and escalating geopolitical tensions.

Furthermore, concerns surrounding the US Chinese trade dispute and falling global yields added fuel to the fire. This has occurred in spite of a 1.7% rally in the greenback. Gold reached a high of 1,556 in the first 11-months of 2019 but stalled in September as the Federal Reserve started to ease US short-term interest rates and economic growth started to stabilize.

The length of the trade war and its grinding impact on the U.S. economy even caused the U.S. Federal Reserve to alter its tightening plans. A year ago, the Fed was raising rates. This December, it’s expected to keep rates on hold after three consecutive rate cuts in July, September and October.

The combination of solid US jobs growth and the demand for riskier assets helped stabilize the US 10-year yield which capped the upward momentum in gold prices. Recently (the past 5-years) movements in gold prices and the US 10-year yield have been inversely correlated (moving in opposite directions).

We all know that this year gold has witness some great rallies. But all this doesn’t happen overnight. Gold has achieved this mark gradually. Let’s see how gold made its way here.

From 1987 until 1993 a gentle price downtrend occurred. Prices traded sideways from 1993 until 1996 and were in a downtrend from 1996 until 1999. Prices then traded sideways until 2001, and then embarked upon a powerful 10-year uptrend that produced an all-time high of $1,908.60 in 2011. And then from 2011 until 2015 prices trended solidly lower.

Since 2015 gold prices have been trending up, but in choppy fashion. The monthly gold chart at present is overall technically bullish. That suggests the outlook for gold in the coming New Year is for more of the same—trending sideways to higher in the coming months.

Gold traded lower until May as optimism over a trade deal drove investors into higher-yielding assets. At the same time, the Fed was hawkish although policymakers were divided over whether to continue to raise or hold rates steady.

Gold put in its low for the year in May after the U.S. and China called off trade talks. Risk aversion increased globally as fears of world recession resurfaced amid disappointing macro data in major economies. Equity markets sank worldwide and U.S. Treasury yields dipped to multi-year lows as investor sentiment soured over growing global growth worries.

Gold may have bottomed in May, but its most impressive price move took place during August and September. This was shortly after the Fed made its first of three rate cuts on July 30.

Fear of a recession also helped spike gold prices higher as Treasury yields inverted. However, the move proved to be speculative in nature as the Fed continued to insist the economy was not headed toward recession and its rate cuts were just a “mid-cycle” policy adjustment. It was at this time that the Fed started to talk about limiting its easing to 1 or 2 more rate cuts.

Gold hit its high for the year after the Fed started to talk about easing up on its rate cuts, and the U.S. and China decided to move back to the negotiation table. It’s likely to trade sideways to lower over the near-term as long as the trade talks continue and the Fed holds rates steady.

Expectations of at least three rate cuts and a summer of trade war uncertainty fuelled a four month rally in gold in 2019. With the Fed expected to hold rates steady and the U.S. and China still negotiating, gold may be underpinned over the near-term, but there is no urgency to buy it
When we talk about outlook for any asset, the market always gets divided into two sections- the bulls and the bears.

Let’s take a look as to how each section continues to justify its belief-

THE BEARS BANDWAGON

For the bearish sentiment followers, it is difficult to predict a high sustainable growth for gold. From the recent speeches addressed by Fed Chairman Powell, it can be stated that the Federal Reserve is on hold. The Fed has made it clear that the hurdle rate for additional rate cuts is larger than it has been earlier in the autumn

With the Fed likely on hold, any positive US economic data will continue to lift the 10-year yield which should put downward pressure on gold prices. Additionally, if global growth begins to stabilize and Europe and Asia begin to experience economic expansion, global yields will begin to rise, weighing on gold prices.

Not forgetting to mention the US/Chinese trade negotiations. As of late November 2019, it appears that the US and China are moving closer to a phase 1 deal. While this might spill over into 2020, the deal would reflect a further easing of tensions and the removal of trade tariffs between the two largest economic powers globally.

If there is any positive achievement in trade dispute then gold is likely to head lower, back towards $1300.

THE BULLS BELIEVERS

A lot has changed as a consequence of the United Kingdom was voted in the favour of Brexit on June 23 including a change in gold prices. Gold has surged by 6.5% ever since the Brexit decision, gold has only been climbing higher by each day. And the spill over effect will be witnessed in 2020 too as believed by the bullish supporters for gold. But for this to be true there will be three major catalysts that will play a very important role in pushing gold prices up-

A weakening global economy- Whenever the global economy faces a crisis, gold prices always benefit. The post Brexit economy uncertainties will definitely continue for a while, thus helping gold prices climb higher. A lot of investors and economists have raised questions about the next country to drop out of the European Union ever since the United Kingdom left the European Union. There are talks that the European Union might actually completely dismantle over the next couple of years. The geopolitical uncertainty will definitely send investors rushing to invest in gold.

Rate Cuts- It is a fact that rate cuts lower the value of a currency. When the value of a currency decreases, gold tends to look more appealing as a store of value. ECB has reduced interest rates by -0.4% and there are indications of further rate cuts. And there has been some gossip about UK rate cuts ever since Brexit. Rate cuts, big or small will definitely aid gold prices in climbing higher this year.

Discounted gold- It is evident that gold is trading at quite a discount right now considering the Dow/gold ratio. The Dow/gold ratio can be arrived at by dividing the Dow index by the price of gold. The current ratio of 13.3 is proof that gold is trading at a good discount. Gold will continue trading at a much higher premium in the next few years. The demand for gold is rising in the Asian countries and will continue to do so in the next couple of years.

If the above mentioned catalysts move the way they are supposed to, then gold can show some real bold price movements in 2020.

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

Gold 2019- A Quick Look Back

It’s time to look back. 2019 was a great year for gold. Just when the global markets had started writing off gold in 2018, it once again proved its safe haven appeal in the current year.

he third quarter of 2019 was eventful for the gold sector, with two interest rate cuts from the US Federal Reserve, a price rally and subsequent pullback and lots of speculation.

GOLD remained one of the most trusted asset classes the world over. The precious metal was up 15% in value until 3rd week of December.

Brexit,  geo-political tensions, Global uncertainty and US-China trade tensions kept investors worried about rising uncertainty, thus benefitting gold prices which further kept the gold prices well bid in CY2019.

Central banks- In 2018 central banks bought the most gold ever recorded and these robust purchases continued year to date in 2019. Central Bankers across the world kept buying gold, underlining the possibility of tough times in the near future. In the first three quarters, they bought 547 tonnes of gold, which was 12 per cent more than in the previous year

Trade dispute- The year started with the continuation in the trade tensions between the US and China. The first phase of the trade deal did not go through. Trade wars between two major economies of the world, kept pushing gold prices high.

As the Fed shapes US monetary policy, it influences significantly the macroeconomic environment and thus also the gold market. The link between the US central bank and the yellow metal is manifold. First of all the Fed set the federal funds rate which affects short term interest rate and indirectly ht whole structure of interest rates in the economy. Hence when the Fed tightens its monetary policy, interest rates rise. Then they increase faster than inflation, real interest rates go up which is negative for gold, a non-yield-bearing asset. On the contrary, when the Fed eases its monetary policy, interest rates decline. When they decrease faster than inflation, real interest rates go down which is positive for the yellow metal. And this was clearly visible in 2019.

Brexit- Economic uncertainty in the European Union continues to drive safe haven gold investment in Europe after a failed referendum on EU-Ukraine trade relations. Concern over Great Britain’s upcoming referendum on EU membership (set to take place in June) is also straining the markets. If the Brexit were to occur, it would likely spell the eventual demise of the European Union as an institution and set a prerogative for further member state exits. The Fed announced that the implications of a Brexit would be discussed at length in its next meeting. You may have already heard about the Brexit, but if you have not, now you have. This should continue to build momentum in the news as we approach June 23rd. This date is significant because it is the day the referendum will be held to vote whether Great Britain stays or exits the EU, hence the portmanteau “Brexit”.

Slow global growth- Global growth weakened considerably in 2019, falling from 3.2% in 2018 to of 2.6; the main culprits, the trade wars and weakening growth in China. In response, many central banks began to loosen monetary policy thus proving to be positive for gold.

Increasing gold prices compelled investors to add gold to their portfolio. Gold-backed ETF holdings also reached all-time highs by October as investors responded to the high-risk, low rate environment.

As we look ahead to 2020 we believe investors will face an increasing set of geopolitical concerns, while many pre-existing ones will likely be pushed back rather than being resolved. In addition, the very low level of interest rates worldwide will likely keep stock prices high and valuations at extreme levels. Within this context, we believe there are clear reasons for higher levels of safe-haven assets like gold. Geopolitical volatility will continue to be part of the background of general uncertainty that has been very favourable to gold for several years now.

There is plenty of support for gold in 2020 and the yellow metal might embark on a long-term sustainable rally in a new era of uncertainty. Gold prices are expected to trade in a range, between $1,450 and $1,600 an ounce next year.

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

Fresh Breakout Levels For Gold

Precious metal prices have had a very strong year

Gold rose substantially above our year-end forecasts of USD 1,400 an ounce.

Gold prices were supported by a general shift in monetary policy of major central banks from tightening to a new round of easing, a decline in government bond yields, an increase in the amount of negative yielding government bonds, weakness in the Chinese Yuan, uncertainty on global growth and global trade front, and Brexit uncertainty.

The majorly influential factor for the yellow metal was the US China trade dispute. Almost the entire calendar year of 2019 stretched over this news for the global financial markets.

But this week we saw so many twists and turns regarding this matter.

First Trump entered in the fray. He dumped US China trade deal and said that it will happen only post US election in October 2020. The biggest losers over this news were DOW and US 10y and obviously the gold prices rallied and crossed$1475 which happened nearly after 4-5 weeks. (inversely proportional to the dollar)

But this was just not enough, when we saw a real example being set in the books of history at least pertaining to US china trade deal. On one side there was news that any trade dispute development will happen only after October/November 2020, while on the other hand there were news in the market on Wednesday that a US China trade deal will happen soon.

This uncertain news created a much ascertained volatility in the precious metals markets. This move is further expected to boost gold traders again fro lows. Once we saw the worst 1 decade monthly ADP jobs data reported at 67k a day. So its tight rope for these $1475-$1480 bracket on recent gold breakout. Once see a departure and sink below $1470 this will be extremely negative for the gold prices. However, till it survives $1470 broadly it’s headed for $1495-$1500.

In Prithviraj Kothari's opinion, Gold is expected to rally above $1480 and silver above $17.20. These can be considered fresh breakout levels.

We expect the US dollar to weaken modestly because of deterioration in longer-term fundamentals and weakness in near-term cyclical dynamics. Gold tends to rally when the dollar declines and we think this relationship will hold in the coming years.

Precious metal prices have rallied strongly. Long term outlook for gold is positive. But wait for a correction to position for higher prices.

Gold Remains RE-Committed

Gold has risen more than 13% this year mainly due to the trade dispute driving demand for safe assets

The policy U-turn by central banks suggests they do not have full command over the global economic situation. This, alongside an unpredictable White House, the rise of populism, de-globalisation, de- dollarization and questions over the future of capitalism itself, have led to a feeling of instability from which gold has certainly benefited.

But in these uncertain times, gold has once again proved its worth. It appears that gold has been one such haven investment and investors will also agree to this. Where on one hand the FTSE 100 index gained just 2%   over the past 12 months to mid October, on the other hand gold has gained 21% in the same time frame.

The recent strength comes after a wobbly few years for gold, which have seen it struggle to break above $1,350. Its rise coincides neatly with 2019’s falls in US interest rates.

In Prithviraj Kothari's opinion, After the thanksgiving note, there was a good positive opening mostly in Asian markets as China indicated that they are still in the fray of a deal with the US for this phase, deal to happen so beginning of the month is full of data pack from US and EU.

Further, there was a tense kind of situation in the EU wherein countries demanded their gold back.

Just a few short days after Poland’s government touted its economic might after completing the repatriation of 100 tons of the barbarous relic; and with Hungary's anti-immigrant Prime Minister Viktor Orban also ramping up holdings of the safe-haven asset to boost the security of his reserves; more Eastern European nationalist leaders are demanding their country's gold back on home soil.

The various leaders have a recent example to prove their fears right as the Bank of England refused to return Venezuela’s gold stock over political differences.

In spite of the geopolitical issues, gold price fell on Monday as investors turned to riskier assets on signs of economic growth following reports of an expanding Chinese factory sector and as a rising dollar reduced demand.

Spot gold was down 0.5% at $1,456.70 per ounce by during Mondays’ trading hours, having earlier touched it’s highest since Nov. 22. U.S.

Positive data released from the Chinese markets, unexpected expansion numbers in factory activities during November, led to a spur of investor in the equity markets as further positive releases were expected from other countries.

Any positive data released, creates optimism in the market thus giving confidence to investors who then move to riskier assets which in reduce the safe haven demand for the yellow metal.

Investor demand for gold was further pressured by the rising dollar, which makes dollar-denominated gold more expensive for buyers using other currencies.

Trade dispute between the United States and China has supported gold, with reports that a preliminary agreement has now stalled because of U.S. legislation supporting protesters in Hong Kong and Chinese demands that the United States roll back its tariffs as part of phase one deal.

Nonetheless, Gold has been the star performer of 2019, but does the gold rush have further to run?

The basics are still quite supportive, this lull is not going to last too much longer. Maybe into yearend we will see gold prices recommit the uptrend and is expected to trade between $1,450-$1,500.

Gold Expected To Bounce

November wasn’t a great month for the yellow metal as prices were down almost 4%. This was the biggest drop seen since November 2016. This decline was seen following positive news about a deal between Beijing and Washington which further weakened demand for the safe-haven metal.

Hopes for an interim U.S.-China trade deal buoyed demand for riskier assets.

There was not much clarity as to where will these trade talks lead to, hence the volatility was reflected in the trading prices.

Dampening gold prices pushed the dollar prices high as both are inversely proportional.

U.S. President Donald Trump on Wednesday signed into law congressional legislation backing protesters in Hong Kong, prompting Beijing to warn of “firm countermeasures”.

The Hong Kong protest went uglier as the reports suggest, thus souring the mood and thereof on their indices. Friday being half session, the US and data flow once again big here are few warnings from economists when they say that Hong Kong is the biggest political risk for financial markets. Today there is rupee traction on the weaker side.

Gold considered a safe store of the value during economic or political uncertainties, has gained more than 13% this year, mainly due to the tariff dispute.

But this week gold once failed to make headway through USD $1,460 - $1,465 on Wednesday, sold lower on trade headlines and strong U.S. data. It was generally one-way traffic throughout the session, as the yellow metal skewed offered in Asia, before accelerating declines in Europe/U.S. hours.

If the yellow metal crosses the $1500 an ounce mark then there is further potential for a price rise. But if it breaks below $1445 then a significant correction is expected which will result in further losses for gold prices.

A break above $1,500/oz would suggest the potential for additional upside in prices. In contrast, a break below $1,445/oz would point to a more significant correction underway, and we would expect further losses for gold prices.

Gold seems to be under pressure though it may hit the lower side target near 37500 and should give little bounce towards $1470 in the international markets where traders can sell for moderate gains.

In Prithviraj Kothari's opinion, Gold seems to be under pressure though it may hit the lower side target near 37500 and should give little bounce towards $1470 in the international markets where traders can sell for moderate gains.

Gold - Safe, Sound And Stable

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Gold Will Get Its Support

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

Be Vigilant to Be Ahead

With even a minor drop in gold prices, many players in the market start doubting gold’s rally and raise questions about the gold bubble. Similar things happened this week.

Initially, gold was pulled down. Mario Draghi positioned up a September easing package but that wasn’t enough for the gold market. It hit $1433 after the initial ECB statement but the lack of action resulted in a drop in gold prices as it was down by $9 to $1416.

The ECB left interest rates unchanged at its meeting on Thursday, but its President Mario Draghi signaled that the bank was prepared to cut rates in September.

Market participants are now looking forward to the U.S. central bank’s monetary policy meeting, where it is expected to trim its interest rate by at least 25 basis points.

President Trump stressed his point to US Fed to do a sharp interest rate cut, rather his recently appointed member Shelton advocated for 50bps cut.

U.S. GDP data, which is due on Friday, is expected to show that U.S. economic growth slowed to 1.8% in the second quarter from 3.1% in the previous quarter.

If markets decide that the Trump administration’s commitment to the strong dollar is under review, investors are likely to sell the US dollar hard, including versus gold.

Furthermore, China added more gold to its foreign reserves in June, for the seventh month in succession. In fact, it is not the only country that’s piling up gold.  In 2018 alone, central banks bought 651 tonnes of gold, up 74 percent compared to 2017 and the highest level since 1971. Over the past decade, central banks have purchased more than 4,300 tonnes of gold, taking their total holdings to around 34,000 tonnes today. The trend has continued in 2019, with net purchases reaching 90 tonnes before the end of the first quarter

Central bank purchases of gold are no guarantee that gold prices will rise but they indicate to the wider investing community the underlying and potentially price-supportive demand for the precious metal. Also, historically, a rise in international tensions has proven somewhat supportive of the gold price, and there is certainly no shortage of that at the moment.

A lot of fuel is expected to be added to keep gold supported. Given the ongoing tensions in the Gulf, the various trade disputes and other geopolitical uncertainties, Prithviraj Kothari expects gold prices to strengthen further.

Gold traders should place stop at $1409.5 (i.e. breaking this will straight-pull it down to $1400) be vigilant. Buy at $1414 for targets $1422-$1425 at most towards advance GDP data.