Sovereign Gold Bonds Scheme by India & FED Rate Hike - Timing Matters: RSBL!

- Mr. Prithviraj Kothari, Managing Director, RSBL

Rather than talking about International Bullion, I am glad to put forward the decision of Government of India, in consultation with Reserve Bank of India (RBI), to issue Sovereign Gold Bonds. A welcome move by Government of India, after their announcement during the Budget. The best part of this is:

1. The investors will be compensated at a fixed rate of 2.75% per annum payable semi-annually on the initial value of investment. This a good interest rate that their offering as compared to the policy that they issued a decade back. For Indians who purchase Gold with a traditional respect can now get a chance to earn a fixed interest rate along with the benefit of Price appreciation.
2. Minimum permissible investment will be 2 units (i.e. 2 grams of gold. With already a wave of new bank accounts being opened due to Jan Dhan Yojna, this minimum permissible investment gives an added advantage to reach the masses who can invest as low as 2 grams.

My personal feeling is that the scheme would be a huge success with the financial, safety implications that have been covered in alternative to holding physical gold at home.

I am sure Sovereign Gold Bonds shall raise a new chapter in Indian Bullion Industry.

As mentioned in my previous Blogs, Gold is still a sell on rallies. The physiological level s US$1200 is yet to be broken convincingly if we talk about it on a technical front. Fundamentally, lower the price the better the buying opportunity.

The data dependent week for gold finished in the prices in red as investor sentiment eroded due to uncertainty in US monetary policy.

On Wednesday, the Federal Open Market Committee (FOMC) chose not to increase the federal funds rate but it did remove the prior concern over global growth and volatility. This was largely interpreted in the market as hawkish, signaling higher rates from the Federal Open Market Committee’s December 15-16 meeting.

I do feel that you would be a bit confused that if FED is not increasing the interest rates, it is good signs for Bullion as the safe heaven appeal rises due to uncertainties in economy. But the December meeting is the most anticipated one. There has been growth in US economy and as the FED says it has been moderately paced. But they cannot go on throughout their time with negative interest rates. The timing is crucial and that is where the whole delay is. So the rates increase has already priced in Gold poor show. The spot gold price was last at $1,1141.40/1,141.90 per ounce, down $5.70 on Thursday’s close. Silver prices followed the Gold fall where the last recorded price was $15.57/15.62.

RSBL SPOT Gold Price

Some of the important data released this week weren’t meeting the expectation of FED:

1. A Negative Advance GDP q/q print of 1.5% instead of 1.6% was a small hiccup for US economy.
2. CB consumer confidence in US showed a gloomy picture of 97.6 instead of 102.5
3. Core Durable Goods Orders m/m for US posted a negative performance too of -0.4% instead of 0.0%

US data releases between now and mid-December will be viewed as crucial but a major obstacle for the US central bank’ policy-setting board will be a key few who believe inflation should reach – or at least approach – the Fed’s target of two percent before a lift-off. Though a part of the FOMC wants to hold off until 2016, Fed chair Janet Yellen has said repeatedly she would prefer to rise the federal funds rate this year despite poor inflation and the tepid US economic recovery.

A rate hike this December would weigh on gold and given the recent gains in positioning could mean a deeper correction than would have been otherwise. A drop in gold prices would mean a good buying opportunity for physical buyers in China who need to stock up for the Lunar New Year festivities. Though the festival falls in the second half of February, people might advance their purchases if a dip in gold prices is witnessed.

Investors will now, desperately, await the December meeting for a potential normalization of monetary policy. Expectations in financial markets about a possible rate hike by the Fed this year are low, but a Fed rate hike is not completely priced out yet.

US data releases between now and the December 16 FOMC meeting will likely be very important as market participants try to gauge the health of the economy and whether or not a potential move in December would be justified. The Fed is ‘data dependent’ and there shall be a great deal of new information that shall be released between now and the December meeting, much of which shall have to turn for the better if the Fed is going to act

Technical Range for Gold price and Silver price next week:

METAL	International price range	Domestic price range
Gold	$1126 - $1177 per ounce	INR 26100 – INR 27000 per 10gm
Silver	$14.47 - $16.20 per ounce	INR 35200 – INR 38500 per Kg

The primary purpose of this blog by Prithviraj Kothari - MD, RSBL, is to educate the masses of the current happenings in the Bullion world.

- Previous blog -
" GOLD LOSES DIRECTION: RSBL"
http://riddisiddhibullionsltd.blogspot.in/2015/10/gold-loses-direction-rsbl.html