Gold being pulled between bulls and bears

Lately, gold has shown a typically consistent price pattern. It has witnessed a lot of pull and push in the trade range. It generally starts on a negative note, recovers and is pulled down again. So it’s a wave like movement, which leaves the markets perplexed over its behavior.

It’s difficult for market players to project or analyse the markets for gold- whether it’s bullish or bearish. This has been going on for quite some days now. As gold moves up and the market expects it to cross the key levels. Something contradictory happens and the yellow metal starts trading negative again.

The classic example of this would be the recent Federal Open Market Committee meeting on July 31/August 1.

 The U.S. Fed chair Jerome Powell’s statement on the U.S. economy and likely Fed interest rate policy for the remainder of the year strengthened the dollar and pushed gold’s trading range back around $20.

When the data released was not par expectations, gold did manage to trade high, but then was pulled down over rate hike expectations.

So right now the market is divided in to groups. This that want the yellow metal to fall below $1200 and those that would like gold to strengthen and cross $1400. So there is a kinda tug of war between the $1200- $1400 trade range.

In the short, probably in the coming month gold looks negative. It might be down. But is soon expected to gain momentum as we the onset of the festive season in India which will mark a rise in demand for gold. Apart from this, equities look weak and markets might shift to gold as an alternative investment.

One more important thing that will contribute to these rising prices is bitcoins. After the much hype surrounding this investment option, it’s not being welcomes by the parties that are suspicious about its future.

Coming to our main point of discussion, Will gold stick to the bears market or is it expected to enter the bulls. Well it depends on the following factors-

• Markets returning to trade after U.S. Labor Day Holiday
• Dollar
• Chinese import tariffs laid by the U.S and reaction/actions of the Chinese government
• U.S inflation
• Fed policies
• ECB
• Russia’s market volatility

Gold, too, has historically had a role as a haven asset in times of global market turbulence. Now, Financial markets continue to watch for any evidence that might knock the Fed off its projected path to raise interest rates twice more this year and three times next year. Apart from that any global uncertainty is expected will be welcomed by the bull supporters for gold. Markets also await the onset of the festive season in India, which will see a rise in the demand for the yellow and thus push up gold prices further. So currently along with the US economy happenings, a lot of global factors will also play a key role in influencing gold prices. Any sudden event can boost the yellow metal high towards the end of 2018.

Gold - A Store of Value

Though gold headed for its first weekly drop in six week, it remained in the positive territory - thanks to U.S uncertainties, Bitcoin crisis, ECB hawkish comments to name a few.

Spot gold has declined 0.5 per cent so far this week, its worst week since early December.

Spot gold was up 0.4 per cent at $1,332 an ounce by 0659 GMT. On Thursday, it touched its weakest level since Jan. 12 at $1,323.70, having fallen from recent four-month highs.

Amid worries of a possible US government shutdown, the dollar weakened and gold strengthened with prices rising higher on Friday. Legislation to stave off an imminent federal government shutdown encountered obstacles in the US Senate late on Thursday, despite the passage of a month-long funding bill by the House of Representatives hours earlier.

Legislation to avoid a US government shutdown at midnight on Friday advanced in Congress, as the House of Representatives on Thursday night approved an extension of federal funds until February 16, although the bill faced uncertain prospects in the Senate.

The dollar has fallen since 2017 largely on expectations central banks besides the Federal Reserve are seeking to end their policy of ultra low, even negative, rates that they adopted to combat the 2008 global financial crisis and the recession that followed.

Furthermore, reacting to ECB’s hawkish language, gold prices rose during Asian morning trading hours. The yellow metal gained momentum as ECB’s December meeting minutes and soft US data weighed on the dollar.

ECB’s December minute were claimed to be hawkish due to a discussion of a gradual shift in guidance from early 2018 - much earlier than had previously discussed.

A disappointing US data lowered the dollar. The dollar index was down by 0.5% at 91.81 as of 11:57 am Shanghais time.

The December Producer price index fell 0.1% against an expected increase of 0.2%
Unemployment claims rose to 261,000 this week. Marking the fourth consecutive weekly increase and a more-than-three- month high.
.
As mentioned above, another reason that has favored the rise on gold prices is the much hyped Bitcoin. Is it a bubble or a boom? Bitcoin, the world’s most popular crypt currency, has seen a major correction, losing over 40 percent of its value in less than a month, prompting investors to dump the crypt currency in exchange for the precious metal.

As of this writing, the cryptocurrency, which skyrocketed from below $1,000 in early 2016 to the historic milestone of $20,000 in December 2017, was hovering around $11,600 per a coin, according to CoinDesk. On Wednesday, the price of Bitcoin dropped to $9,400 at one point.

Currently Bitcoin look quite uncertain. It was easy to get into it but now investors are finding it difficult to come out. AS we see that currently with Bitcoin and dollar facing a decline in vale, gold on the other hand ahs rallied 7.5% in the past month and also carries with itself a history of being a safe haven asset and a store of value.

Gold logs modest rebound from 6-months low

While we saw palladium diverged last week, gold prices remained weak. The strong dollar has been weighing on the yellow metal, but a stronger oil prices may well give it some support if stronger oil prices encourages investors back into commodity baskets.

Last week gold was on the negative side as its prices tracked lower in London on the morning of Friday November 18, with continued strength in the dollar pushing it to six-month lows.

The spot gold price was recently quoted at $1,208.45/1,208.70 per oz, down $6.55 on Thursday’s close. And reached $1203 earlier in the day -it’s lowest since May.

The dollar index was recently at 101.35, up 0.35% – it is holding around its highest for 14 years amid expectations that the US Federal Reserve will raise interest rates next month.

The US dollar has strengthened alongside increasing expectations of a US rate hike in December.

Fed officials who spoke last Friday had indicated that rates should go up next month and that the Fed could adjust its outlook as and when more details of president-elect Donald Trump’s policies become visible,.

“The market is almost fully priced for a rate hike in December at 98%.

Bullion has fallen 5.4 percent this month as of Friday's close, pressured by nerves around the U.S. election and speculation over the timing of an interest rate hike by the Federal Reserve.

The overnight Fed comments gave the dollar the support required to continue its stunning run higher and it is hard to see gold being able to rally the support required to break away from $1,200 as we head toward the December FOMC meeting.

US Federal Reserve chair Janet Yellen said that US interest rates could rise “relatively soon” due to an improving domestic labour market and stronger growth.

Should the US dollar continue to rally, gold is likely to remain under pressure.

These low prices have induced some interest in the physical market this increasing the demand for gold. Russia purchased the most gold in 18 years in October – central bank holdings rose to 50.9 million ounces from 49.6 million ounces, ANZ said in a note.

Gold prices rose in Asian trade on Monday, snapping a 3-session losing streak, buoyed by physical buying after the metal slid to a 5-1/2- month low on Friday.

Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar, in which it is priced. Hence any positive development over the interest rate hike immediately puts pressure on gold this pushing its prices down

Meanwhile, gold premiums in India, the second largest consumer of the precious metal, jumped to two-year highs in the week to Nov. 18 as jewellers ramped up purchases on fears the government might curb imports after withdrawing higher-denomination notes from Circulation.

Spot gold seems to have found a support at $1,204 per ounce; it may hover above this level for one day or bounce moderately.

Gold moth continue to struggle against a backdrop of a firmer U.S. stock market, a stronger dollar and rising global rates and there are chances for prices to weaken below $1,200 in the next few weeks leading into the Federal Open Market Committee.

But ETF investors are continuing to pull out – holdings have dropped by 54 tonnes or 2.5% to 2,109 tonnes as of November 18 after rising 33 tonnes in October, 27 tonnes in September and 16 tonnes in August.

With US markets set to close later this week for Thanksgiving holidays, volatility is likely to be pronounced into the end of the month, Commerzbank noted.

US PRESIDENTIAL ELECTION EFFECT ON GOLD: RSBL

 By Mr. Prithviraj Kothari, MD, RSBL

As US elections head for the home stretch with both the leading candidates heading for a photo finish, financial markets across asset classes are jittery. Higher volatility is visible across all markets, be it oil, gold, bonds, currency or equities.

A prelude to how markets are expected to behave was given by world market on reports of Donald Trump closing the gap on Hillary Clinton in the presidential race. While most investors expected Hillary Clinton to win the elections, recent disclosures by Federal Bureau of Investigation (FBI) on Clinton’s e-mail controversy has helped Trump regain lost ground.

We shall take a look at how various asset classes are expected to behave if Hillary Clinton or Donald Trump moves to the White House. 

Gold markets thrive on uncertainty, it usually does before US elections. But this time around market experts feel uncertainty will continue and help gold prices if Trump wins. A Trump win is likely to bring in uncertainty till he comes clean on his policies. Equities are expected to drop down 10-15 percent . Rupee depreciation is expected and gold may rise up to 40-50 $

A Hillary win will leave markets unshaken. Since more are in favour of a Hillary win, her victory is not expected to make the markets volatile.

Irrespective of who wins studies  show that as the dust settles, the year following the elections could be bad for gold prices.   

US PRESIDENTIAL ELECTION EFFECT ON GOLD: RSBL

 By Mr. Prithviraj Kothari, MD, RSBL

As US elections head for the home stretch with both the leading candidates heading for a photo finish, financial markets across asset classes are jittery. Higher volatility is visible across all markets, be it oil, gold, bonds, currency or equities.

A prelude to how markets are expected to behave was given by world market on reports of Donald Trump closing the gap on Hillary Clinton in the presidential race. While most investors expected Hillary Clinton to win the elections, recent disclosures by Federal Bureau of Investigation (FBI) on Clinton’s e-mail controversy has helped Trump regain lost ground.

We shall take a look at how various asset classes are expected to behave if Hillary Clinton or Donald Trump moves to the White House. 

Gold markets thrive on uncertainty, it usually does before US elections. But this time around market experts feel uncertainty will continue and help gold prices if Trump wins. A Trump win is likely to bring in uncertainty till he comes clean on his policies. Equities are expected to drop down 10-15 percent . Rupee depreciation is expected and gold may rise up to 40-50 $

A Hillary win will leave markets unshaken. Since more are in favour of a Hillary win, her victory is not expected to make the markets volatile.

Irrespective of who wins studies  show that as the dust settles, the year following the elections could be bad for gold prices.   

5 YEAR (2011-2016) POST DIWALI ANALYSIS: RSBL

 By Mr. Prithviraj Kothari, MD, RSBL

Buying gold and silver is considered to be auspicious in most of the festival especially on Akshay Tritiya, Dussehra, Dhanteras and Diwali. Even jewellers project gold in different manner during festival season.  Jewellery houses offer attractive discounts and other such schemes to lure the customers. Some have gone a step further and are offering discounts on the making charges as well.

We usually hear in advertisement that “Diamond is forever” but for Indian market if we see craziness about gold than for us “Gold is forever” seems to be the apt statement.

A historical analysis shows that largely on the day of Diwali, gold prices witness a correction, while the price increase actually takes place around two weeks prior to the festival.

Generally I have always been asked what are your projections for Diwali, how does the market look etc. But this year I have put across a post Diwali gold analysis from 2011- 2016. Let’s have a look.

                   

Diwali 2011- Gold prices ended steady at INR 31,300 per ten grams in special Diwali trading on 26^th October,  on selective buying, while silver fell by INR 150 to INR 49,000 per kg on reduced off-take.
Traders said the gold remained steady on token buying by market participants to mark the beginning of new Hindu Samvat year 2070, while silver declined on lack of support.

They said buying activity was restricted and the volume of business limited. Gold buying in India, the world's biggest buyer of the metal, tapered off further after the festival week, even as domestic users started getting small import lots, weighing on premiums.
India, struggling with a high trade deficit and weak currency, had been trying to curb demand for gold, the second-biggest import item after oil. It has made gold expensive for consumers by setting a record 10 percent import duty and made supplies harder to come which kept gold more or less stablisied.

Diwali 2012- Generally, gold sales remain good throughout year but when festival season starts gold breaks record in terms of purchase demands in India. Its seems to be true for 2012 too. Although gold price was nearby INR 32,000/- per 10 gm. on Dhanteras, it did not affect the demand and the craze to own the yellow metal continued. Gold is considered as safe haven. Gold investment also helps in bad financial situation that is the reason people don’t hesitate in purchasing gold even at higher price.

Once again this year people showed added interest in purchasing Gold. That is the reason country’s top two exchanges BSE and NSE recorded a total turnover of over INR 2,200 crore in gold ETF on Dhanteras and simultaneously demand for gold coins and bars as also high. 

Although Gold was trading at a record price of INR 32,000 per 10gm. Investors were still investing in gold because they knew that investment in gold is secure as it gives return like 670% in 10 years which is difficult to achieve from other asset class and it was a life time high in 2012 which kept the faith of investors in the yellow metal alive

Diwali 2013-  Since 2013 was one of the worst performing years for gold, the demand for it declined too. In the domestic bullion market shows that demand had slowed drastically as compared to the last festive season. Gold prices were trading at levels of around

Rs30, 000/10gm and this factor to a great extent is seen as having a dampener effect on demand for gold jewellery. While compulsive gold shoppers would yearn to buy gold coins and bars, because of the tight supply conditions they may not be able to do so.

A firm global trend on speculation that the US Fed might maintain stimulus to boost economic growth also supported the sentiment, they said. On the other hand, jewellers were seen offering discounts on making charges in order to lure buyers. Then too, sentiments doing rounds in the gold market are on the weaker side for 2013  thus affecting big purchases among the small to-middle income group category

Diwali 2014-  Gold sales in India during the festivals of Diwali and Dhanteras celebrated this week rose by about a fifth, a senior official at the country's biggest gold trade group said

Premiums in India, the second biggest buyer of bullion, jumped to $17-$18 an ounce during Diwali. Diwali sales across the country were very good. It was about 20 per cent higher compared to 2013. The strong demand from India was supporting global gold prices.
India set a record high import duty on gold last year to curb its trade deficit, and made it necessary for importers to re-export a fifth of all their purchases. The move contained imports into the country, with the resulting supply shortage sending local premiums to about $160 an ounce over the global benchmark at one point. Some of the rules were eased earlier this year, leading to higher imports and a fall in local prices. This year prices were low, sentiment was good and there was a  stable government in the centre; all of these helped boost sales. In anticipation of strong demand during the festivals, India had imported $3.75 billion worth of gold in September - a 450 per cent jump from the same period last year.

India imported 151.6 tonnes of gold in November, up nearly 38 per cent from October, as traders bought aggressively expecting curbs on overseas purchases.

India last year levied a record import duty of 10 per cent on gold and introduced the 80:20 rules after surging trade and current account deficits sparked the worst currency turmoil since the 1998 balance of payment crisis.

But instead of putting in place more restrictions, the government surprisingly scrapped the so-called 80:20 rule in the previous month, mandating traders to export a fifth of all imported gold. Traders had few takers for the gold they bought in November.
Trading agencies were expecting curbs on imports and subsequently higher premium in December. So they imported more than their requirement but were then struggling to find buyers.

Diwali 2015- Rising for the second straight day, gold prices edged up by INR. 5 to reach INR. 26,235 per 10 grams on the eve of Diwali that fell on November 11.The bullion market witnessed increased buying by jewellers to meet festive and wedding season demand amid a mixed global trend.

Silver, however, met with resistance and dropped by INR. 535 to trade below INR. 35,000-mark at INR. 34,875 per kg. Traders said sustained buying by jewellers to meet festive season demand and a better trend overseas mainly kept gold prices higher.

Diwali 2016- Gold prices drifted lower by INR 100 to INR 30,650 per 10 grams in special 'Diwali Muhurat' trading at the bullion market on Sunday in the absence of worthwhile activity.

However, silver held steady at INR 43,000 per kg on scattered buying support from industrial units and coin makers. Traders attributed the fall in gold prices to absence of activity as jewellers kept buying restricted.

They, however, added that token buying activity on the auspicious occasion of 'Diwali' and the beginning of Hindu Samvat Year 2073 capped the fall.

Over all, unlike 2012, we did not get to see gold touching Rs. 32000 mark during Diwali since then. Gold seems to have been steady withing Rs. 25,5000- Rs.30,500 range around the festive season.

The primary purpose of this article by Mr. Prithviraj Kothari is to educate the masses of the current happenings in the Bullion world.

Previous blog:

"An Action Packed December: RSBL"

 http://riddisiddhibullionsltd.blogspot.in/2016/10/an-action-packed-december.html

TRADE RANGE FOR GOLD REMAINS TIGHT

- By Mr. Prithviraj Kothari, MD, RSBL

The sentiments are so strong for the gold market that people get overly excited about the top as well as the bottom of the market. At times gold seems to be behaving like a common man who is fleeced by the minutest to the most extreme global scenarios.

This week too gold was dancing to the tunes of the US dollar, The US Jobs Data, Fed Interest rate hike, ECB’s actions on Greece, crude oil prices. So it’s basically a vicious circle for gold.

Ups and mostly downs were being strongly witnessed by gold. For the month of January Gold was up 8.4 per cent, its biggest monthly rise in three years, helped by a sharp slowdown in US fourth-quarter economic growth. US gold for April delivery edged up 0.2 per cent to US$1,265.20 an ounce.

But the first week of February was disappointing for gold. Gold steadied on Friday ahead of crucial US employment data, but was set to post its biggest weekly loss in almost two months after steep gains at the start of the year.

The gold market appears to be in a tug of war with uncertainty: in Europe, with Greece boosting safe-haven demand on one side, and a strong U.S. dollar on the other side. The metal dropped 1.5 percent this week the most since December.

Let’s analyze the key influential factors for gold

US Employment Data- The employment data released on Friday was much above the expectation levels and this changed the market’s view on when the U.S. Federal Reserve will announce a rate hike, and has hurt the metals complex since then.

Total nonfarm payroll employment rose by 257,000 in January, and the unemployment rate was little changed at 5.7 percent, from 5.36 percent the U.S. Bureau of Labor Statistics report stated.  Job gains occurred in retail trade, construction, health care, financial activities, and manufacturing. The change in total nonfarm payroll employment for November was revised from +353,000 to +423,000, and the change for December was revised from +252,000 to +329,000. With these revisions, employment gains in November and December were 147,000 higher than previously reported.

This further raises the expectations for the Federal Reserve to hike interest rates by mid-year, denting the appeal of non-interest yielding assets such as gold.

Strength in the U.S. economy is backing the case for the Federal Reserve to raise interest rates, curbing gold’s appeal because the metal generally gives investors returns only through price gains.

Greece- Meanwhile, investors remained wary of developments in Greece, after the European Central Bank said it would no longer accept Greek bonds as collateral for lending, shifting the burden on to Greece’s central bank to provide additional liquidity for its lenders and increasing pressure on Athens.

Greece’s government is seeking debt relief on its current €240 billion bailout, which has fuelled fears over a clash with its creditors that could bring about its eventual exit from the euro zone.

This uncertainty over Greece has provided the much needed support to gold prices.


ECB's action on Greece- The market kept an eye over the ECB’s actions on Greece after the newly elected Greek Prime Minister wanted to end the austerity programme by the Troika. The ECB restricted Greece from tapping the ECB’s direct liquidity lines, forcing the Greek banks to borrow at a higher rate from the Bank of Greece under the Emergency Liquidity Assistance.


Uncertainty about the ECB’s funding for Greece and the country’s exit from the Euro has led to a stronger demand for gold. Despite the weak Euro, which has fallen five percent against the Dollar this year, the gold price has risen 6.64% year-to-date and has climbed as high as ten percent this year. While some profit taking is natural after the big gold price move, the continuous liquidity boost from China and Europe and the volatility in the currencies are likely to support gold prices in the medium-term.


The metal is still up 6.8 percent this year amid concern about austerity measures in Greece and as central banks in Europe and Asia announced more stimuli to bolster economic growth. Investors have added to bullion holdings in exchange - traded funds for the past month, bringing assets to the highest level since October.

Apart from global facilitation., another element that will be crucial for the gold market are the growing problems in Europe as the European Union and Greece have been unable to develop a renegotiation agreement.

Following factors shall be monitored over the weeks to come-

• G20 meeting on 9 February,
• China’s January inflation data on 10 February
• U.K. December manufacturing output on 10 February,
• The Eurozone December industrial production on 12 February
•  The U.S. January retail sales on 12 February
• The Eurozone Q4 preliminary GDP on 13 February.

TRADE RANGE FOR GOLD:

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1180- $1270 an ounce	Rs. 26,000- Rs. 28,000 per 10 gm
SILVER	$16.15- $18.00 an ounce	Rs. 36,000- Rs. 40,000 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 -
"Too Many Surprises For Gold In The Week To Come"
http://riddisiddhibullionsltd.blogspot.in/2015/01/too-many-surprises-for-gold-in-week-to.html

ALL NOTIONS TO SEE GOLD AT $800 DESTROYED!!!

                                                                                                             - By Mr. Prithviraj Kothari, MD, RSBL

A few weeks earlier, we saw a lot of noise in the market…but this time it seems that someone left the loudspeakers on!

Well, oil and SNB played the game here.Precious metals showed great volatility- all thanks to the fluctuating oil prices.

Crude oil was highly volatile after a report from Paris based energy agency IEA depicted a likely reduction in Non-OPEC output for 2015 by 350,000 BPD. 

Moreover, gold and silver prices soared in Euro terms after the SNB moves and now many market players are beginning to wonder if a loss of confidence after the Swiss fiasco has started a run on gold? 

Bullion traders said sentiment turned better after gold rallied to the highest since September in global markets as the dollar weakened after Switzerland decoupled its currency to the euro and lowered the deposit rate.

Gold had closed at 1276.50 following a brief intraday break above 1280, its highest level since September 2014. We look to the September 2nd open of 1286 as the next important level of
Resistance, followed by 1300 and 1320. Momentum indicators are increasingly bullish.

Gold regained its safe-haven mantle following a shocking and unforeseen decision by the Swiss Central Bank (SNB) to scrap its cap on the franc’s exchange rate against the euro.


After the SNB- Swiss National Bank dropped the bombshell on the markets Thursday morning, the prices of the precious metals had gone in one direction… UP.  In just two days, the price of gold was up $40 and silver $1.10.

Post this action, gold rose more than 2 percent to a 4 month high in Thursday. This was a result of the move by Switzerland to abandon its three-year cap on the franc sent global shares and bond yields into turmoil. 

Following the Swiss National Bank’s unprecedented move to abandon the franc’s peg to the euro, the country’s currency had appreciated sharply against the U.S. dollar. The surge in the Swiss franc…means it is now the most overvalued of all the developed market (DM) currencies in terms of the deviation of the real effective exchange rate from its 10-year average

The SNB has been under growing pressure to revisit the peg as speculation grows that the European Central Bank could introduce outright money-printing as early as next week, which could see the euro zone flooded with liquidity.
It looks as is the SNB decision has finally destroyed the notion of $800 gold ever again.

Furthermore, a Labor Department report released on Thursday showed that Jobless claims climbed by 19,000 to 316,000 in the week ended Jan. 10, the most since early September, from a revised 297,000 in the prior period.

Adding to it, the gold price climbed on Friday after a lackluster US inflation report had participants readjusting their timetable for the next Federal Reserve rate increase.

In data, the US consumer price index fell 0.4 percent last month, the biggest drop since December 2008, after sliding 0.3 percent in November. It also undershot the -0.3 percent forecast.

This goes directly against the Federals Reserve’s mandate to achieve inflation of around two percent as the reports imply a deflationary trend. Which further means that the fed may probably delay its rate increase as it would want to know that inflation is on track to hit this level before acting?
Additionally, deciding not to reduce stimulus in 2015 would also be consistent with a goal-oriented approach to the employment mandate.
Additionally, Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose to 717.15 tons on Friday from 707.59 tons from its previous close on Thursday.

Fall in equities and worries over Euro area political and debt issues might continue to help Bullion complex as a whole and mainly the yellow metal.
Next week we could see further volatility as the ECB are set to meet and it is widely expected they will announced a broad-based government bond purchases.
We stay with our moderate positive bias in Gold and advice buying on small dips.




- Previous blog - "Lot of Things To Smile About For Precious Metals"

http://riddisiddhibullionsltd.blogspot.in/2015/01/lots-ofthings-to-smile-about-for.html