LOTS OF IF's AND BUT's FOR GOLD

-by Mr. Prithviraj Kothari,MD,RSBL

Last year it was Syria...This year it’s Ukraine. Geopolitical tensions have always been a booster for gold and other precious metals and it has helped gold in enjoying its safe haven appeal as it always does in times of economic turmoil recession, inflation etc.

This week gold remained on the top and showed some interesting record movements too.

Gold prices bounced on Friday during the trading hours, rising 3.3 per cent from last week's close at 1385$ per ounce, a level not witnessed since early September. Gold sailed through US$1,380 and was on course for a sixth successive week of gains as the situation in Ukraine showed no signs of easing.

Apart from the Ukraine Crisis deceleration of Chinese economic growth has dampened the investors risk appetites. Retail Sales and Industrial output figures were out this week and it has been quite disappointing. According to MNI, a Chinese Government source said not to panic if 1Q GDP would be below target. This once again raised the question that the all so hyped China and its economy and its hunger for gold was just a temporary thing? Well we need to wait and watch

This uncertainty surrounding the rising economies has to an extent eroded investors confidence. The catalyst for a shift in risk sentiment remains to be seen as the market shrugged off positive US data overnight, suggesting the potential for a lacklustre reaction to upcoming Consumer Confidence figures.

Gold continues to be well supported as Russia is seemingly un-phased by the prospect of sanctions from the West. The population in the Crimea province votes this weekend on whether to secede from the Ukraine, with the way the ballot has been set out seemingly certain to guarantee that is the outcome say observers. It is likely to be followed by the US and its allies imposing sanctions on Russia on Monday, potentially starting a round of tit-for-tat retaliation with serious implications for financial markets and the US dollar.

The last time gold had such a gold run was in July/August 2011, soon after which the metal started its climb to the all-time record high of $1,921 per troy ounce.

Looking at the week ahead, if emerging markets fears abate and US data continues to improve; traders may ease out of safe-haven plays like US Treasuries. The resulting rise in yields would likely help the greenback to recover some lost ground, which in turn would weigh on gold prices. 

If situation in Ukraine results in unrest or rioting, gold prices would breach $1,400. But if the Ukrainian situation either resolves itself in the coming days or stabilizes to the current standoff and does not further escalate gold could sell off quickly — returning towards $1,300 an ounce. 

Lots of ifs and buts for the Gold next move! But one thing is clear, safe haven appeal of Gold will always be there.

For the week gold is expected to range between $1364-$1420 an ounce in the international market and Rs.29,500-Rs.31,500 per 10 gram in the domestic market.

On the other hand, silver is expected to range between $20.55-$22.00 and Rs.45,000-Rs.48,00 in the international and domestic markets respectively.

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

- Previous blog -

"Gold Trapped?"

http://www.riddisiddhibullionsltd.blogspot.in/2014/03/gold-trapped.html

FRENZY FRIDAY!

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

All this week Bullion danced to the tunes of Labour report from US.

Gold is down about 28% this year, heading for the first annual loss in 13 years, as solid U.S. economic data has underlined expectations that the Fed will begin curbing stimulus.

The bond-buying stimulus has strongly supported gold prices as it has served to keep interest rates ultra low, an ideal environment for non-yield bearing assets. It so happened that a 2% increase in Gold prices was the biggest one day gain in over a month’s time. This can be attributed to short covering and new fund buying that deal that the FED plan to exit asset purchase scheme will still take time.

Gold prices fell on Thursday but remained range bound after solid U.S. economic growth and jobless claims data; firmed up talk that Federal Reserve will begin scaling back stimulus programs within the coming months. Even though European Central Bank and Bank of England have continued to hold off from any new policy action, markets are fixated on U.S. economic snapshots and any data that gives an idea when the Federal Reserve might start curbing its bond-buying programme.

Gold prices rode a rollercoaster Friday, regaining some ground after Thursday's sharp losses right ahead the U.S. Bureau of Labor Statistics published strong job numbers, to fall sharply after the announcement.

The game was all being played by forecasts. 

On Friday, as the US Labour report was released, gold was seen in a different mood.

Gold climbed in volatile trade on Friday, bouncing from session lows reached after U.S. jobs data beat forecasts, as traders who had bet on even larger losses rushed to cover their positions.

The actual figure was higher than forecast at 203,000, compared to consensus forecasts of 185,000. The rate of US unemployment also fell to a five-year low of 7%, but economists suggested the figures were heavily skewed by the US government shutdown in October. Thousands of government employees who were temporarily laid off returned to work last month. Unemployment rate in the US fell to 7.0% from 7.3% in October. Economists predicted a smaller decline to 7.2%.

Meanwhile, the Commerce Department said personal income edged down by 0.1% in October after increasing by 0.5% in September. Economist did not expect the drop, as they had expected income to increase by 0.3%. The market fell immediately after the figures showed that U.S. employers had hired more workers than expected in November and the unemployment rate had dropped to a five-year low of 7 percent, which strengthened the case for the Federal Reserve to start reducing bond purchases as soon as this month.

Gold prices have now erased some of their losses for the week but were still down 1.2 percent after having dropped sharply on Thursday as data showed the U.S. economy grew faster than estimated in the third quarter.

The majority looks through the noise towards the end goal, i.e. tapering and a slow normalisation of US monetary policy which is coming closer by the day. As a result, at this stage it appears as if rallies will simply be sold into, whether the data beats expectations or not. Gold ETFs seems to liquidate on every opportunity, with the latest data showing ETF holdings are down another 113Koz. Silver should follow gold and as a result remains a sell into rallies.

The Federal Reserve, which holds its next meeting on December 17-18, has said the timing of its tapering depends on the health of the labour and housing markets.

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

- Previous blog -

"China Support for gold"

http://www.riddisiddhibullionsltd.blogspot.in/2013/11/china-support-for-gold.html

"FED" UP?????

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

Post 2008 gold prices have sky rocketed and this made gold an investors favourite. Following the 2008 crisis, investors turned to gold as a hedge against inflation that was expected to rise as a result from central banks effort to stabilise the economy through bond purchases. But 2013 has been considered one of the worst years for bullions as it turned tabled for all precious metals.

Now with the US economy in the recovery mode and with inflation being more or less tame, many investors have disowned and abandoned gold and shifted to equities.

By the end of 2013 we see that god prices have tumbled 26 per cent over the uncertainty that the Federal Reserve will start to cut its monthly bind buying program which has even strengthened the dollar. Global demand for the precious metal fell 21 percent in the third quarter as investors continued to dump holdings through exchange-traded funds and central banks slowed purchases, the World Gold Council said.

After Janet Yellen's statement released last week, many believe that the uncertainty over Fed bond buying program has been lifted. Janet Yellen — the likely next Fed chair — said last week that she would press forward with the bank’s ultra-easy monetary policy until officials were confident a durable economic recovery was in place that could sustain job creation. Gold witnessed selling pressure immediately after the minutes of the latest meeting of the Fed raised supposition that the central bank could taper its bond buying program, as soon as December

Gold declined this week and it enters the sharpest weekly drop in more than two months as gold prices plunged on Friday. Spot gold was up 0.1% to $1,242.91 an during the trading hours, after hitting a fresh four-and-a-half-month low of $1,236.29 in the previous session

Furthermore, gold prices remained under pressure after data that showed that US consumer prices last month rose at the slowest pace in four years. This clearly indicates that inflation has been contained and when inflation is tame who would buy gold.

Summing it up, the week was not so good for gold because:

1. The Fed’s massive bond-buying programme has burnished gold’s appeal as a hedge against inflation

2. Solid US data over the past few weeks was hurting bullion prices as it could bolster the case for curbing stimulus soon.

Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell 3.6 tonnes to their lowest since early 2009 at 856.71 tonnes on Thursday. Outflows have totalled 450 tonnes this year

Earlier this month the European Central Bank announced a surprise interest rate cut which put more pressure on gold. It also drove up the value of the dollar versus the euro and made investors loos its faith in gold as a store of value

Moreover, what cane as a surprise package was the announcement coming in From China stating that they have taken a step further in liberalizing the gold market. Swap trading on the Shanghai based China Foreign Exchange Trade system has been started by interbank gold.

Bullion has slumped 26 percent this year to $1,245.45 an ounce in London, reaching $1,236.88 yesterday, the lowest since July 9. The declines are another blow in what's been an awful year for gold bulls

Virtually it was the same scenario for other precious metals as we saw platinum struggling and silver trying to keep up.

Silver, like gold, is still a sell into rallies.

Gold support is at $1,238 and $1,227. Resistance is at $1,253 and $1,272. Silver support is at $19.50 and $18.85, resistance is at $20.37 and $20.65.

The primary purpose of this blog (Prithviraj Kothari's view on Bullion Markets- MD,RSBL (Riddisiddhi Bullions Ltd.)) is to educate the masses of the current happenings in the Bullion world.
- Previous blog -
"QE Support- US reamins fragile"
http://www.riddisiddhibullionsltd.blogspot.in/2013/11/qe-support-us-remains-fragile.html

QE SUPPORT- US REMAINS FRAGILE

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

2013 ends on a red note for gold as it heads for its first annual drop in 13 years.

Gold has seen a lot of movements throughout the year. The main reason for this drop was the uncertainty over the QE tapering. QE was responsible to set record highs for gold and the same is the reason for its downfall in 2013. Even today, QE tapering is under one’s scanner- the question is not IF but WHEN.

Gold has been disowned by many, as investors have lost faith in this yellow metal and it is no longer considered a safe haven asset. Though investors have not been buying much gold, lower prices have boosted the demanded for jewellery coins and bars. These have mainly been purchased by the small time buyers.

Increased central banks liquidity has always benefited gold over the past years. However gold has fallen nearly 25 per cent since the Fed stated that it could begin slowing its $85 billion in monthly bind purchases. This week did see a lot of news impacting Gold prices - Statement by Mrs. Yellen, weaker US dollar, SPDR Gold Trusts holding and the gold demand from China and India.

Statement released by Janet Yellen, who is nominated to take charge of the central bank next year, moved the table for gold. Janet Yellen’s confirmation that she will continue the stimulus program of the fed so long as the economic recovery in the U.S. remains fragile was the big news for the bullion market

A weaker dollar index against a basket of major currencies also boosted gold buying,

Also, prominent hedge fund Paulson & co maintained its stake in SPDR Gold Trust. The SPDR gold ETF saw no change in its holdings and no change in the in the Gold Trust, leaving their holdings at 865.713 tonnes and 172.21 tonnes. These also supported the prices.

Demand from China, India and the Middle East surged a combined 27 percent in the 12 months through September, the World Gold Council estimates. Central banks bought 93t of gold in Q3 2013, reserves up almost 300t year-to-date

With India's 10% gold import duty on top of other capital controls, the price one has to pay for gold in India has reached a record spread of 21.6%. A premium of nearly $120 has attracted lot of Scrap gold in the market.

Gold gained nearly one percent this week till Friday, but prices were pulled back on Friday,

It recovered to be flat on the day after the dollar fell 0.3 percent against a basket of currencies, which followed data showing U.S. industrial output had slipped last month for the first time since July

Headlines about potential production threats continued to hit the wires, with Amplat reporting a two day sit-in strike by 2300 workers and Zimbabwe’s President Mugabe saying it may halt exports of raw Platinum to South Africa in order to force the mining companies to build a refinery in the country. Zimbabwe is the second largest Platinum producing country after South Africa. Further support came from a leak of semi-annual Johnson Matthey Platinum Group Metals Reports. According to an apparent leak by Fastmarkets, Platinum slipped deeper into deficit in the first half of 2013, due to strong global demand growth. It forecast a deficit of 605’000 ounces for 2013, mainly driven by an uptake in industrial usage. Wage negotiations continue in the platinum sector in South Africa. A price range for the next 6 months is of $1360 – 1580 per ozs.

China's domestic mining industry does produce a lot of gold. For 2013, it is estimated to be 440 tonnes.  However, China and its miners have a serious problem. Remaining mineable reserves are put at 1,900 tonnes. So unless China can turn up some major discoveries - and they have been somewhat unsuccessfully looking - then they have less than five years of production remaining. China's government has urged national gold producers to boost development of overseas resources in neighboring countries and in Africa and Latin America, according to its 12th Five-Year Plan which ends in 2015.

Next week, we need to note Bernanke's speech, Draghi's speech, the October FOMC minutes release as well as the US October CPI, retail sales and existing home sales on 20 November as well as Germany November IFO business climate index on 22 November.

Whether gold breaks out of that range depends on the direction of the U.S. dollar and further sentiment about the fate of the Federal Reserve’s quantitative easing program vs. what one has to pay in countries where there are no such controls or import duties.

Gold support is at $1,274 and $1,269. Resistance is at $1,292 and $1,310. Silver support is at $20.60 and $20.38, resistance is at $21.02 and $21.40.

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

- Previous blog -

"All Glitters or Just Jitters for Gold"

http://www.riddisiddhibullionsltd.blogspot.in/2013/11/all-glitters-or-just-jitters-for-gold.html

ALL GLITTERS OR JUST JITTERS FOR GOLD?

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

Gold made a snake; like movement last week , ending on a downward note as the week concluded. 

The dollar pushed broadly higher against the other major currencies on Friday, after the release of strong U.S. jobs data fuelled further speculation that the Federal Reserve could soon begin tapering its stimulus program. 

Gold has lost about a fifth of its value this year after these news. The bond purchases and low interest rates has burnished gold's inflation-hedge appeal.

However, lately, as the Fed delayed its decision to taper its monetary easing , the market was compelled to believe that the FED may not start withdrawing its support for the economy soon and this gave the yellow metals a rebound in the recent weeks.

The FED also stated that they needed enough evidence about the progress of the US economy to taper its program. Hence this week as the US data reports were released, the market scenario changed.

Gold showed wave like movements this week ending on a downwards pattern as the week concluded.

The prices of gold and silver changed direction again and bounced back on Thursday along with other commodities prices including crude oil and natural gas.

Gold prices fell under $1,300 after a much stronger-than-expected U.S. October nonfarm payrolls report released on Friday.

Having touched 1-week highs above $1419 per ounce on Thursday, gold fell back through $1400 on Friday as European stock markets erased earlier losses.

Among other precious metals, silver was down one percent at 21.53 an ounce and platinum was trading at $1439.49 an ounce, down by 0.6 per cent.

Rallying US equities and a soaring US dollar sent gold to a three week low as bullion underperformed silver and platinum group metals.

GOLD and silver prices whipped sharply Friday lunchtime in London, as new US jobs data matched analyst forecasts with a 175,000 rise in Non-Farm Payrolls for May and a slight rise in the jobless rate to 7.6%.

The Labor Department said 204,000 jobs were created in October, nearly double the expectations going into the report. September and August employment numbers were revised up by a combined 60,000, while the unemployment rate rose to 7.3% from 7.2%. That was likely an effect of the shutdown.

Though researchers believe that the Federal Shutdown have impacted the jobs figures,  the Labour Department said that survey responses have been normal.

In fact, this stronger than expected US jobs report has led to a downfall in gold prices and is expected to continue to do so in the near future.

Gold market watchers said prices fell on thoughts that the stronger jobs report, along with Thursday’s higher-than-expected gross domestic product data, mean the Federal Reserve may consider tapering its bond-buying program known as quantitative easing, earlier than expected.

This news may have contributed to the strengthening of the USD.  The American trade balance deficit declined – exports of goods rose by a larger rate than imports had during September. This news was also a positive signs for the progress of the U.S economy. Nonetheless, there are still concerns in regards In Europe MPC and ECB kept their respective short term rate unchanged.

But any concrete comment can be made only when the debt ceiling crisis (which has been temporarily resolved) will re surface in Feb.

Till then we need to keep patience.

Other reports that will hold importance for gold is the UoM Consumer sentiment, China Industrial Production and Chinas Trade Balance

As of the previous monthly report, China’s trade balance increased to a $27.7 billion surplus; if the surplus will further expand, it could indicate that China’s economic growth is increasing and thus may positively affect prices of precious metals.

Meanwhile, we celebrated Dhanteras and Diwali last week, two festivals closely associated with bullion buying and the country's wedding season, another major driver of gold sales, is in full swing.

But scarcity of physical gold coupled with weak rupee put a huge damper on sales for gold this year.

In fact, gold sales this year have been just 50 per cent of last year's sales. On the other hand we saw more demand for silver and platinum coins.

Nonetheless, as the marriage season is in full swing we see more demand coming in for gold jewellery and the demand supply gap of gold will soon be filled.

the trade range for gold for this week is expected to be Rs.29,000- Rs.31,000 per 10 gram

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

- Previous blog -

"Halloween Hangover for gold"

http://www.riddisiddhibullionsltd.blogspot.in/2013/11/halloween-hagover-for-gold.html

HALLOWEEN HANGOVER FOR GOLD

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

The Halloween fever seems to have caught hold to gold too as we saw some tricks and treats for the yellow metal.

There were mixed sentiments in the market as the much awaited Fed meeting concluded on the 30th Oct. The Federal Reserve has offered a bundle of surprises this week due to which gold and other precious metals fell on Thursday.

The US Central bank stated that it will keep buying $85 billion in bonds a month for the time being.  The Federals Reeves October policy statement further confused the market as some believe that there is soft growth seen for US while some believe that the situation may worsen.

On Thursday, a sharp rise in the dollar index  broadly pressured commodities after data showed business activity in the U.S. 

Spot gold was down 1.4 percent at $1,323.69 an ounce during the trading hours.

The Fed's comments about the U.S. economy continuing to expand at a moderate pace and lower-than-expected inflation weighed down on gold.

The expectation of Fed tapering further down the road has already been factored into the gold market, and its comment about moderate growth and no inflation triggered some selling.

Moreover as the month ended we saw people shedding off their positions which led to decline in gold prices.

The Fed wants more evidence that the economic progress and growth of the labour market is sustainable. hence they haven't hurried a lot and kept the pace of the QE unchanged for the time being

The U.S. latest weekly jobless claims decreased 10,000 to 340,000 compared to the expectation of 338,000. In Europe, the October inflation rate fell to an almost four-year low of 0.7 percent compared to an expected 1.1 percent, opening the door for the ECB to ease monetary policy further

Nonetheless the Fed has still left open the possibility of tapering open in December or January. This resulted in a decline in gold prices.

However, the market detects a slightly hawkish tone by the Fed, who has left open the possibility of tapering in December or January. As a result, the U.S. stocks and the gold prices got beaten down while the dollar surged. 

Meanwhile, Fed officials continue scratching their heads on what they could do to avert a potential hyperinflation in the near future without damaging the recovering economy.

Gold surged more than 4 percent when the Fed Open Market Committee released its previous policy statement on Sept. 18. Some analysts said the support from U.S. monetary stimulus will eventually fade. 

The market is again divided into two sets of believers- some say that there are hopes of recovery ahead while some say that is going to be a long hard road ahead as the world economy plod along the edge of recession, deflation and then a small recovery. 

While in the Indian markets, the Festival of lights did add much brightness. The demand for gold has not been  as impressive as last year.

Gold sales during India’s festive season have slumped to half their usual levels this year 

India is known as the world’s biggest consumer of gold and sales  traditionally peak around Diwali, the Hindu festival of lights, which is seen  as a particularly auspicious time to buy.    

Diwali has been calm. Sales are down 50 percent compared to last year. There's no demand because prices have soared so much, the economy is slow and inflation is high.

Moreover scarcity of gold has resulted in life high premiums being charged. However, as the 8o 20 policy has been introduced, this demand supply gap will soon be filled and won last much. in fact it will tackled post Diwali.

Gold is expected to trade in the range of Rs.29,500- Rs.31,500 this week.

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

- Previous blog -

"Is it the calmness before a gold thunderstorm"

http://www.riddisiddhibullionsltd.blogspot.in/2013/10/is-it-calmness-before-gold-thunderstorm.html

IS IT THE CALMNESS BEFORE A GOLD THUNDERSTORM??

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

Gold has always been the most favourite metal in its class as it has given tremendous returns since the past 12 years. In fact it has history of 12 years of gains which is why it enjoys the status of a safe haven asset.

But this year gold has fallen almost 20 percent over issues that the Fed would start tapering its easy money police by cutting its $85 billion monthly bond purchases. This has fuelled gold's appeal as a hedge against inflation.

The Fed who first stated that they may begin tapering n September, later released a statement that it might cut its easy money policy if the economic data released is positive and meets certain levels of growth.

The metal, however, has rallied about 8 percent in less than two weeks as disappointing U.S. economic data and lingering budget uncertainties in Washington increased gold's safe-haven appeal.

The recent trend in gold and its volatile reaction to the most recent economic release show the market is still heavily data-dependent for price direction.

After the US shutdown and the temporary delay of the Debt ceiling, the market believes that the worse is yet to come and that US has still not started walking on the path of recovery. these actions will further delay the Feds bond tapering act.

And that will be beneficial for gold and silver.

Bullion was headed for a 1.7 percent gain on the week, having hit four-week highs on Thursday as it benefited from weaker-than-expected U.S. non-farm payrolls data earlier in the week. 

Gold broke the $1350 level for the first time in more than a month as it rose 1 per cent on Thursday. All these upward movements were justified with the expectations that the Federal Reserve will continue its monetary stimulus due to disappointing US jobless claims data,

Bullion prices rallied after the number of Americans filing new claims for unemployment benefits fell less than expected last week. The jobs data bolstered expectations the Fed will not start to rein its stimulus program until well into next year.

Gold inched up slightly on Friday as disappointing U.S. economic data reinforced expectations that the U.S. Federal Reserve will keep its stimulus intact well into 2014.

Spot gold was up $4.62, or 0.34 percent, at $1,351.16 an ounce during the day, hovering below its highest level since Sept. 20 of $1,351.61.

Bullion eked out gains even as the dollar recovered from a nearly nine-month low against a basket of currencies. Other reasons cited for this gain in gold prices was technical buying and a two month high in the open interest for US gold futures

Some players think that gold is poised to rise into an upcoming Fed meeting as economic data isn’t thought to be strong even to alter the Fed’s decision to delay tapering. While the Nonfarm payroll report released earlier this week was considered old news, the government shutdown is thought to have added to the slowing in the US. 

Seeing gold stand up in the face of adverse currency market action was also seen as a positive by some traders . 

An issue that might provide gold with some support early next week is the prospect of a platinum strike in South Africa next week.

The gain in spot prices has further deterred physical demand in most Asian countries. 

In India, premiums were at a record high of $120 an ounce as dealers struggled to meet demand amid tight supplies.

Diwali is just round the corner and demand for gold in India is expected to soar (though it will be just half of last years demand).

However, dealers are struggling to get supplies and thus paying hefty premiums to fill in the gap.

Indian sellers have struggled to source supplies for domestic use for almost three months, since the central bank introduced a rule that required 20 percent of all imports be re-exported. 

   

In fact premiums are elevated and are expected to rise further... and the expectation is that they (stocks) are likely to run out completely around November at a time when the demand will be the highest on account of Diwali

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

- Previous blog -

"Financial calamity avoided or the worse is yet to come??"

http://www.riddisiddhibullionsltd.blogspot.in/2013/10/financial-calamity-avoided-or-worse-is.html

FINANCIAL CALAMITY AVOIDED OR THE WORSE IS YET TO COME??

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

Gold was going gaga over the week. Usually, we don't see much trading, just a few hundred lots of gold futures, on an early Thursday morning in New York. But what we saw this Thursday came as a shock. A wave of buy orders worth over $2.3 billion gushed into the market.

While other commodities declined, gold prices rose on Thursday despite dollars drop.

In just 10 minutes gold prices rose 3 per cent. It created a rhythm for the next 12 hours of trade. In fact many traders and investors were baffled and bewildered as they have seen such inexplicable soaring prices and trade surges over the past two weeks and this time too there were no explanations.

Spot gold rallied to a session high of $1,324.06 per ounce , up more than 3 percent on the day.

Late on Wednesday, the U.S. Congress approved an 11th-hour deal to end a partial government shutdown and pull the world's biggest economy back from the brink of a debt default that could have threatened financial calamity.

The US government shutdown ended and the nations borrowing authority was extended as US President Barack Obama signed in to the deal.

It funds the government until January 15 and raises the debt limit until February 7 so there is the possibility of another manufactured crisis in Washington early next year.

The resolution reached in Congress avoiding US government default left investors sufficiently uncertain that US dollar fell, bond yields eased and gold and other precious metals jumped

Despite the US signing a deal for the debt ceiling and putting a halt to the shutdown, we saw an opposite reaction in the market. 

Gold held onto 3 percent gains throughout the session as the dollar tumbled on Thursday following the U.S. congressional deal to restart the government and avoid a federal debt default.

Now what compelled this behavior????

Investors and traders are concerned that this extension of the debt ceiling had only delayed another shutdown by a few months. In fact, in February, once again they predict another shutdown in Congress between republicans and Democrats. if this happens then we should await a worsened economic scenario and even higher gold prices. 

Moreover, gold once again caught the investors attention as the dollar slumped on ideas that the extension of the debt ceiling and economic damage done to economy as a result of the government shutdown may delay the Fed from tapering in December

The US debt deal is being taken as a positive factor for gold as it will last just a few months. Investors say that it's just a temporary solution which has raised uncertainty once again over the Fed's decision to taper its bond buying.

The two-week shutdown and acrimonious debate over raising the U.S. debt ceiling have knocked investor and business confidence, denting growth prospects for the world's largest economy.

Markets will now refocus on economic news and the timeline for the US Federal Reserve's tapering of its monetary stimulus bond-buying programme. The Fed surprised financial markets in September by opting to delay the start of stimulus reduction.

The Fed is committed to purchasing $85 billion in new debt per month in an open-ended programme (QE). Accommodative measures from the US central bank are supportive of gold because extra liquidity tends to debase the dollar and create future inflationary risks.

Meanwhile in the Asian markets too there were a few factors that soared gold prices.

China's Dagong ratings agency downgraded America to an ‘A -' rating from ‘A’ after the US Congress only avoided defaulting on its debt by a couple short hours.

The decision taken by Dagong has caused precious metal prices to soar, all gaining by around 2-3 percent and breaking away from the remaining commodities sector,

In India, gold was being sold at a hit record premium of $100 an ounce.  A shortage f supplies to me the festive demand has resulted in this high premium.  Due to the additional premiums, quoted gold prices in India are 8 percent higher than the current spot price of $1,261 an ounce Banks, the primary dealers of bullion, are currently importing the yellow metal chiefly for exporters, as under the so-called 80/20 principle, jewellery exporters get priority for supplies over domestic manufacturers. The principle, part of a package of measures announced in July aimed at cutting India’s current account deficit by reducing gold imports, states that 20 percent of all gold imported into India must be re-exported.

Following government clarifications, banks have begun to process fresh orders, but the rule will still inhibit imports.

But nonetheless, the demand supply gap is widening and affecting gold prices.

The trade range for gold this week is expected to be $1290-$1350 (an ounce) in the international markets and Rs.29000- Rs.32000 (per 10gm) in the domestic markets.

The primary purpose of this blog (Prithviraj Kothari - MD, RSBL |  Bullion market blog) is to educate the masses of the current happenings in the Bullion world.
- Previous blog -
"US Deal or No Deal"
http://riddisiddhibullionsltd.blogspot.in/2013/10/us-deal-or-no-deal.html

U.S. DEAL OR NO DEAL?

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

Firstly, I apologize to my readers for not posting the Blog on Saturdays, that I usually do. We were busy with the SPARSH – Touch of Elegance store launch in Borivali, Mumbai. Secondly, what just happened to Gold on the day of my store launch? Gold sent the entire market into shockwaves.

It lost $30 in just two minutes. There was huge sell order that triggered the plunge. This single order was said to be the culprit as it took gold down to a three month low. Friday extended bullion's drop to a fourth consecutive day, its longest losing streak since late June. For the week, the metal was down 3.4 percent, its sixth weekly decline in seven weeks. 

Gold's sudden price tumble was a result of hedge funds and institutional investors flooding the gold futures market with sell orders. Spot gold was down 1.5 percent at $1,266.80, having earlier fallen as much as 1.8 percent to its lowest since July 10 at $1,262.14 an ounce.  An unusual large sale order in New York Futures and signs that a deal strike to avert potential US debt default prompted investors to sell and flee the market.

Gold is generally viewed as a safe haven asset in turmoil. But some confusion prevails in the market that has set gold moving on the other side.

However, later in the day markets attention was again moved towards the data that was out for release. Though gold was under selling pressures, the losses were almost halted by data that showed US weekly jobless claims touched a six month high in the previous week. Gold was quickly sold below 1300 again, but had to rally when US jobless claims came out with a 374’000 number and headline traders let it jump to the day’s high of 1312. The U.S. Bureau of Labor Statistics however said the number was wrong, due to a new computer system in California, as well as the government shutdown, so that gains were immediately given back.

Trading volume, which has been light this week, heated up briefly for about 10 minutes in U.S. morning trade. Prices remained range bound, with buyers on the sidelines due to a lack of U.S. data and anxiety over how the stand-off in Washington will play out, as a U.S. government shutdown continues. 

Gold remains vulnerable and possibly quite volatile in the short term but it is becoming increasingly attractive to long-term buyers with a significant rise in the price all the more likely over the next three-to-five years.

The uncertainty over the US government shut down is expected to create a negative impact on consumer spending, unemployment and economic activity. And if the impact will last longer then it's is less likely that the Federal Reserve would make any pending change in the US monetary policy. The Federal Reserve will not risk adoption of policies that might trigger a full-blown recession.

The current situation of the market place is that the US government will come to a budget agreement and raise the debt ceiling. But, in case that does not happen, the market has to be prepared for soaring gold prices as the yellow metals will once again dress up as a safe haven asset.

In the domestic markets, it's the demand numbers that's playing games. Despite seasonal demand, there is a weak trend in the domestic market. However, the demand is expected to pick up as rural income is expected to boost.

India gold purchases may go up this year on likely firm rural demand boosted by higher than expected monsoon showers, weak yellow metal prices. A report by the WGC expected demand to high in gold this quarter. Crashing international prices are also prompting buyers to enter the market at dips.

First thing that Indians stock is food and then Gold,. Gold, in India, is always considered above all other asset classes. Be it equities, real estate, funds etc. Demand for gold is expected to increase in the days to come.

Looking ahead, Indian festival and wedding-related demand, restocking by jewellery manufacturers worldwide in anticipation of Christmas and New Year retail buying, continuing strong demand from China, and a pick-up in central-bank acquisitions, should underpin the gold price and could contribute to a resumption of the long-term uptrend in the metal’s price.

Gold in the international and domestic markets is expected to trade in the range of $1230- $1320 an ounce and Rs.27,000- Rs. 31,000 per 10 gram respectively.

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

- Previous blog -

"Only one thing is certain for gold.....uncertainty"

http://www.riddisiddhibullionsltd.blogspot.in/2013/10/only-one-thing-is-certain-for-gold.html

RSBL's SPARSH - Touch of Elegance - Second showroom!

With the grand success of our first showroom, our valuable clientele wanted us to bring the creations in the suburbs of Mumbai. So here we are, justifying my Motto: “Make products that meet customer needs”. 

We are delighted to announce the opening of our second Sparsh – Touch of Elegance showroom in Mumbai. The city continues to be an important market for us, one we take pride in and understand perfectly. Few challenges faced by the Gold & Diamond jewellery sector of India which will be catered by this product are transparent pricing scenario when it comes to making charges & raw materials costs like Diamonds etc and absolute brand assurance. We are confident that the new showroom will set new standards in jewellery sales in the area and help us move forward in our business endeavours. Customer satisfaction is our utmost priority and the showroom promises to provide patrons a completely new experience in buying high quality one-of-a-kind jewellery.

                                     

INVITATION FOR THE OPENING OF RSBL SPARSH'S SECOND SHOWROOM!

We find great pleasure in cordially inviting you to the Grand opening of our second exclusive Gold & Diamond Jewellery showroom of Sparsh-Touch of Elegance by RSBL. Please find the details below.

Your presence will be highly honoured.

ONLY ONE THING IS CERTAIN FOR GOLD....... UNCERTAINTY!

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

The U.S. shut down was the most discussed topic last week. The world largest economy might be pushed into default in case of a failure to increase the debt limit. Though the partial shutdown did not create much impact on gold prices globally, this shutdown along with the debt ceiling will surely have a major impact on bullion prices worldwide.

As shutdown enters its second week, there prevails lot of uncertainty in the markets.

Gold fell on Thursday, as investors booked profits after the previous session's gains due to uncertainty about a partial U.S. government shutdown and slow demand in key physical markets. 

It rose 2.2 percent on Wednesday, posting the biggest daily gain in two weeks, as the dollar fell to an eight-month low and no end appeared in sight to the shutdown. 

Gold prices closed lower on Friday, held down by dollar strength to lose more than 2% for the week after having been batted around by the U.S. government shutdown and debt-ceiling worries.

Gold was trading in a tight range during Asian hours on Friday as the Chinese markets were closed for a national holiday through Monday and simultaneously there was not much US data expected or released through the week.

In such an uncertain environment where even a partial shutdown is expected to move gold prices higher and increase its demand as a safe haven asset, we found an exactly opposite trend prevailing in the market. Demand for gold crumpled as there was speculation in the market that the effect of the partial U.S. government shutdown will be short lived.

In the past too, such stand offs have been resolved at the last minute just before a major deadline. the same was expected this time too. But now the scenario seems to be changing,

As many as 800,000 U.S. federal employees are temporarily out of work. Congress also faces a dispute over raising the $16.7 trillion debt ceiling this month.

Further, the market is starting to look ahead toward the Oct. 17 date by which the Treasury has said it will hit its borrowing authority, meaning another potential political fight over the debt ceiling.

While the temporary U.S. government shutdown has not been a positive driver for prices, the risk of a debt ceiling breach holds scope to reignite interest.

Other factors that could influence the market next week include minutes of the last meeting of the Federal Open Market Committee and the return of Chinese buyers after a week-long holiday.

Next week, As India marks the onset of the festive season (to begin with Navratri) and Chinese buyers are back after an extended holiday,  demand for gold is expected to increase. Whatever the case, many anticipate the metal will get a lift if the political stalemate and U.S. government shutdown goes into a second week. Meanwhile, a week-long Chinese holiday will end next week, bringing potential buyers of physical metal back into the market. All these factors will extend a supporting hand for gold.

Traders who have been active in the market have been closely watching the US data on the labour and housing markets. Key figures will help in judging the strength of the US economy which in turn could decide when the Federal Reserve would begin cutting back its bullion-friendly stimulus measures

Fed officials have said this week that the lack of data was making it difficult to read the economy and the Fed might have to keep monetary policy for longer to help offset the harm caused by political fighting in Washington.  Spot gold eased 0.1 percent to $1,315.44 an ounce by 0307 GMT after sharp swings earlier in the week.

This shutdown has also started affecting economic data releases. US nonfarm payrolls, considered the most importantly monthly data release in financial markets, is unlikely be published as scheduled.

Thus has left the data calendar rather light, with August German PPI coming in at -0.1 per cent, 0.2 percent points below the forecast.

The International Monetary Fund managing director Christine Lagarde among others, has warned that the US and the global economy could be dragged into further difficulty unless the US can resolve both issues (shutdown and debt ceiling) quickly. In the rest of the precious metals, trade has been broadly stable, though most lost some ground.

Platinum and palladium slipped $1. Platinum last $50 in this week, a fall of 3.5 per cent and palladium dropped $32 (4.3per cent). Silver was down five cents at $21.60 per ounce.

The trade range for gold in the international and domestic market in the coming week is expected to be $1301-$1370 an ounce and Rs.28,500- Rs.31,000 per 10 gram respectively.

Now all eyes are glued on the debt ceiling.

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

- Previous blog -

"Debt Ceiling or Death Ceiling for Gold?"

http://www.riddisiddhibullionsltd.blogspot.in/2013/09/debt-ceiling-or-death-ceiling-for-gold.html