TOO MUCH NOISE IN THE MARKET

 By Mr. Prithviraj Kothari, MD, RSBL

By the time you read my next article we will be in the next year. So let’s have a brief outlook on how 2014 was for gold.

But before we begin an in-depth analysis of the same let’s have a quick glance through the soft quite week that passed. A week that was a continuous tussle between Bulls and Bears where $1200 was a new price target for Gold.

Markets were generally quiet overnight on this Christmas Eve day. U.S. markets closed early and many traders and investors had checked out for the week, if not for the rest of the year. Due to thin trading volumes gold did not show much volatility in the market. It gained one percent on Friday as the dollar slipped against a second straight weekly drop, underscoring the bearishness in the market.

Spot gold was up one percent and was seen trading at $1,194.05 thus moving away from a three week low of $1170.17 that it hit earlier in the week. Though gold gained on Friday, the week ended on a low note for gold. Gold declined after data released from U.S. showed that that economy grew in the third quarter at its quickest pace in 11 years. Moreover, other data released showed that initial claims for state unemployment benefits dropped for the fourth straight week.

SPDR Gold Trust, the world's largest gold - backed exchange - traded fund, said its holdings fell 0.08% to 712.30 tonnes on Friday - a fresh six-year low.

Not only for the week, even for the year Bullion has declined 0.6 percent as prospects for higher U.S. borrowing costs, accelerating economic growth and a plunge in crude-oil prices crimped investor demand for the metal. 

Some of the key influential factors for gold throughout the year 2014 have been - (chronologically)

• Tapering of the QE3
• Crimean Vote
• Geo political tensions in Ukraine (Iraq, Syria, Israel)
• Historic win of Mr. Narendra Modi
• Middle East Tensions
• ECB’s aggressive monetary stimulus package
• THE BANK ESPIRITO SANTO crisis
• Uncertainty over interest rates hike by the Federal reserve
• Strengthening US Dollar
• Slowdown of the Chinese Economy
• Swiss Referendum

Simultaneously we also need to have a look at what would turn the tables for gold in 2015.

The US economy: The US economy progress is measured in areas such as retail sales, industrial production, housing starts, payroll numbers and the broadest measure of unemployment. If the economy deteriorates then there are renewed expectations that the Federal Reserve may accommodate the financial system, particularly the banking system, and the combination of those factors could trigger a massive decline in the U.S. dollar. As a result of that, we will see spikes in commodity prices, such as crude oil, gold and silver.

Dollar: The number one thing for gold is the dollar, particularly in the near term. The dollar has to turn. Several Fed officials are now expressing concern about the strength of the dollar. If we see several weak economic reports in the next few months, the Fed is going to make noises about continuing to ease. That would push the dollar down and push up the price of gold.

Chinese economy: Gold may advance amid speculation that China, the world’s biggest consumer, will take more measures to bolster the economy, boosting demand for the precious metal as a store of value.

Russian and European Economies: Russia’s economy has been struggling with high inflation, crushing economic sanctions and weak oil prices.

Europe is still feeling some of the effects of its financial crisis as economic growth remains anemic and the central bank fights deflation. This uncertainty could create another crisis in emerging markets, and gold would benefit as a safe-haven investment.

Fed’s interest rate hike: If they make an outright comment that they're going to raise rates on a specific date, I think that could have a pretty serious hit to the equity markets.

Equities market: With equity markets back at record highs, that it also wouldn’t take much of a global crisis to spook investors, driving them back into gold markets.

Demand Supply: Any significant drop in gold prices will cause some supply disruptions, creating a floor for the market. Another benefit for the gold market should also come from gold-backed exchange-traded funds, which has seen lower redemptions throughout 2014


What we notice here is that the factors are similar to that of 2014 but will work in favour of gold. When the year is about to end, whoever I meet keeps asking for only thing- my outlook for gold for the coming year.

Well to begin with I would first like to share with you the various predictions that I have got from different people.
Some are really optimistic for the gold market for 2015 compared to other analysts as they think that the yellow metal could end next year around $1,250 while some feel that it will be well stuck at around $1200.

Some feel that gold prices will fall to $1,100 or even $1,080 an ounce as the U.S. dollar continues to dominate the marketplace and investors adjust to normalized U.S. interest rates.

   
There’s a lot of noise in this market right now, and this noise is causing volatility in the metals that a rude rumour is coming when the Fed, instead of raising rates, launches a QE4 to keep the economy from slipping back into a recession.

Investors shouldn’t rule out gold’s appeal as a safe-haven investment as a lot of uncertainty still remains in the marketplace. In fact safe-haven demand could help the gold market in early 2015.

TRADE RANGE FOR 2015:

METAL	INTERNATIONAL PRICE	DOMESTIC PRICE
GOLD	$1130- $1350  an ounce	Rs.24,000- Rs.32,000  per 10 gm
SILVER	$14.50- $24.00  an ounce	Rs. 32,000- Rs.60,000  per kg

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 - "Fed's "considerable time" creates "considerable impact" on gold"
http://riddisiddhibullionsltd.blogspot.in/2014/12/feds-considerable-time-creates.html

INVESTORS LOSING INTEREST IN GOLD OVER INTEREST RATE RISE

by Mr. Prithviraj Kothari, MD, RSBL

Last week we saw that the dollar denominated all the markets especially gold. It was the strengthening dollar that was responsible for the plunge in gold prices. 

This week it was even more worse. Precious metals tumbled down and the losses coincided with the recovery of USD against leading currencies such as Euro and Yen and the rally of U.S equities. 

The main market movers were the US Dollar and the Chinese economy. 

Though other markets have also seen volatility, the impact on the precious metals markets has been severe. Equities have been on a bull run but commodities have consistently been on the downside and have been hit with sliding prices and withdrawals by investors, squeezing profit opportunities for funds and traders. 

Gold closed at $1205 in 2013 and picked up well in 2014, rising to a high of $1380 in March. But post March, gold prices plummeted and have witnessed a loss of 5.5 per cent so far in September.

Gold prices declined for the third straight week after the Fed raised it approximate for a key lending rate even as policy makers confirmed an assurance to keep borrowing costs close to zero percent for a substantial time.

The chief reason for the recent weakness is the US Federal Reserve's projection for where official interest rates will be heading. The reason why the market has been so reactive to the interest rate rise is that an increase in interest rates and bond yields would raise the opportunity cost of holding gold. Currently gold has is not strong and has been giving negative returns. The strong co relations between gold and US bond yields will further reduce gold prices. Moreover, higher rates also tempts investors to shift to riskier assets like stocks that have been considerable returns. Moreover it continued to set records in 2014.

On Thursday, gold settled at its lowest closing price since the end of December, pressured by the dollar’s move higher after the Federal Reserve meeting on Wednesday

Spot gold was down 0.5 percent on Friday and among other precious metals, silver was down 2.5 percent to $18.01 an ounce. It touched $17.81, its lowest since August 2010.

On Friday the price of gold fell again, reaching a fresh 2014 low following three weeks of straight selling on the back of a strong dollar and expectations of a rise in US interest rates

Globally, we have witnessed financial uncertainty from 2009-2012. This had compelled investors to adopt gold as gold has always been considered a safe haven asset in turmoil.

The Fed now expects that short-term interest rates will be back to normal levels of around 3.75% by the end of 2017.

With the US Federal Reserve announcing a further $10 billion reduction in its monthly purchases, leaving the programme on course to be shuttered next month, it has also made clear that record low interest rates would be around for at least a few more months.

China followed by India are the worlds largest consumers of gold. But this year, demand for gold from both countries faded. Demand in China, which overtook India to become the top consumer of the metal last year, fell by 22 per cent to 351 tonnes in the first half of the year as the country's economic growth slows down, after reaching record levels in 2013. Jewellery fabrication in India, the world's second largest gold consumer, declined by 18 per cent to 296 tonnes in the first half on lower official imports after the hike in imports duty last year.

We still await some rise in demand from both countries because July, August and September are typically months for strong months of Gold performance months as buying from Asia increases – particularly due to upcoming festivals and wedding season in India.

A good gauge of demand is buyers' willingness to pay a premium over the international price.

Gold imports travelling through Shanghai's Pudong International Airport surged by 200 percent month on month since June as the Shanghai Gold Exchange (SGE) announces plans to allow foreign investment into China's gold market.

Some modest signs of increased demand in the physical gold market after a dramatic slump in Asia this year, have emerged.

To conclude, I think that precious metals are more likely to suffer tougher times if the dollar stays strong and if positive data continues to flow in from US. Well if it happens otherwise then gold may witness a bullish run.

WEEKLY TRADE RANGE-

METAL	INTERNATIONAL price	DOMESTIC price
GOLD	$1206 - $1256 AN OUNCE	RS. 26,200 - RS. 27,500 PER 10 GM
SILVER	$1750 - $1825 AN OUNCE	RS.39,000 - RS. 41,000 PER KG

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 - "Denominating Dollar"

http://www.riddisiddhibullionsltd.blogspot.in/2014/09/denominating-dollar.html

BULL V/S BEAR

by Mr. Prithviraj Kothari, MD, RSBL

Over the past few days gold has been playing touch and go with $1300 mark. It has enjoyed a recovery as it moved strongly higher off the $1275 level. In the past week, gold was seen falling sharply at the key level of $1275. In fact, before plunging, gold touched the resistance around $1313. 

The market is now divided into bull versus bear market. There are some who are positive about gold and believe that gold prices will move higher while some believe that it will further enter the bear market. 

Lets justify their views-

BULLISH SENTIMENTS~

Uncertain global environment:

Escalating tensions in eastern Ukraine fuelled safe-haven demand for gold on Thursday, offsetting upbeat U.S. data that would have otherwise pushed the precious metal lower.

The tensions between Russia and Ukraine and militant activity in Iraq are keeping gold from falling back. Certainly people are concerned about the military situation in Ukraine, Syria, and Iraq. There were news that more than 100 Russian soldiers were killed in eastern Ukraine in a single battle this month while helping pro-Russian separatists fight Ukrainian troops.

Rising demand for physical gold:

Moreover, we have seen over the past years that September is one of the best months for gold in terms of physical demand. Over the last 20 years, the yellow metal has seen an average gain of 3% in September.

In India, August marks the onset of the festive season and people buy heavily as September sets in. August 29th has marked the beginning of the festive season with Ganesh Chaturthi and will go on till Diwali. Ahead of this expected demand Indian jewellers and dealers will be stocking up in the coming weeks, so it should affect prices

Along with this, we all see the wedding season setting in and no other metal can replace gold in the so called big fat Indian weddings. Be it jewellery, gifts or any other investment purpose, gold has always been India's first choice. 

Moreover demand from rural areas is also expected to rise as India witnessed a much better monsoon than expected. The majority of India's gold demand comes from rural areas, so the monsoon weighs heavily on purchases.

BEARISH SENTIMENTS~

Strengthening Dollar:

Gold has been pulled the winding down of the US QE program and a probability of rates hike. Probability that the Fed may increase its Fed- Funds rate by mid 2015 will effectively reduce gold price in dollar terms.

US economic development:

This week, important data coming in from US has clearly shown signs of a gradually strengthening economy. The U.S. gross domestic product grew at a revised annualized rate of 4.2% in the second quarter of this year. 

The U.S. Department of Labor said the number of individuals filing for initial jobless benefits in the week ending Aug. 22 declined by 1,000 to 298,000 from the previous week’s revised total of 299,000.

A separate report showed that U.S. pending home sales increased by 3.3% last month, beating expectations for a 0.5% rise. June’s figure was revised to a 1.3% drop from a previously estimated decline of 1.1%

As we all know, any positive data coming in from US has a negative effect in gold prices as gold is pressured by the idea that if the U.S. economy has sustained improvement then the Federal Reserve will start to raise rates, once it ends its quantitative easing program.

Geo-political tensions:

Further there were news that Geo-political tensions seem to have eased out and hence, we saw gold losing its safe haven status and gold prices slipped back below $1300.

Import restrictions:

The lack of any movement to change Indian import restrictions under the new government has also been a disappointment for the gold bulls.

As we see that the market has been divided into two segments: "the bulls and the bears" and as we go through this transition we can expect to see assets outperforming expectations. The market can’t help but exceed expectations since the investors' expectations are so low at this point.

We now see what the market has been awaiting for:

Dates	Data expected
1st September:	The August China NBS manufacturing PMI index and the Euro zone final manufacturing PMI
2nd September:	The U.S. August ISM manufacturing index
3rd September:	The preliminary Q2 GDP of the Euro zone
4th September:	The Bank of England and the ECB interest rates decisions and announcements on 4 September
5th September:	U.S. August non-farm payrolls and the unemployment rate

 

The market will be watching the outcomes of Thursday’s European Central Bank meeting and Friday’s U.S. August nonfarm payrolls report for gold direction. Economists are looking for ECB to take some sort of action, with a cut to interest rates likely.

TRADE RANGE

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1273- $1307 an ounce	Rs. 27,500- Rs. 28,500 per 10 gram
SILVER	$19.15- $19.85 an ounce	Rs. 41,500- Rs. 43,500 per kg

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 - "Uncertainty over Interest Rate Hike!!!"

http://riddisiddhibullionsltd.blogspot.in/2014/08/uncertainty-over-interest-rate-hike.html

2014- AN INTERESTING START UP FOR GOLD

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

Whenever a slightest of hope arises that the global economy is on a path of recovery ...a jerk hits and turns this hope into a nightmare. But these people are surely giving gold and other precious metals a jerk in the upward direction.

Price trend of gold in 2013, compelled many investors to believe that gold was finally entering the bear market and that it was time to shift focus to other metals. Gold had bottomed in December 2013, reaching $1182. But by February 2014, gold has managed to gain 13% by touching levels of $1340. In February itself, gold has gained 7 per cent. This has been its biggest monthly rise since July 2013 mostly due to weak data in US and geopolitical tensions around the world.

This week too gold was up. On Monday, gold rose 1 per cent over uncertainty and geopolitical tensions going on in Ukraine. Under these uncertain scenarios, people have once again given gold the safe haven status that it has been enjoying since years.

Russian-backed president Viktor Yanukovich cast doubt on a bailout deal with Moscow, saying it needed $35 billion over the next two years. Acting President Oleksander Turchinov warned that Ukraine was close to default and heading into the abyss.

U.S. data on Friday showed fourth-quarter growth expanded at a 2.4 percent annual rate, down sharply from the 3.2 percent pace reported last month.

Gold steadied around $1,330 an ounce on Friday and was on track for its biggest monthly gain as persistent concerns about a slowdown in the U.S. economy hurt the dollar. 

But the Federal Reserve chairman, Janet Yellen, stated that the harsh winter weather was to be blamed for this slowdown and economy will soon improve once weather conditions get better.

In the previous two meetings, the Fed had trimmed its monthly bond purchases by $10 billion and is expected to do so in its next meeting to be scheduled on March 19.

The entire market awaits this meeting as the picture will get clear that is it the weather or something else that has to be blamed for a disappointing US economy. It is then that the Fed will be able to take a concrete decision regarding its tapering or it could even mean some loosening. The softer tone and the apparent readiness of the Fed to slow the pace of tapering have boosted both the gold prices and stocks.

Moreover, ETF gold liquidation has slowed down as the price has of Gold moved upwards. ETF gold holdings have been moving sideways since the middle of January. SPDR gold trust is stable at a holding of 803.70 tons. 

But what stole the show was Platinum, as prices reached a high of $1455, outperforming gold. As such the reports by Impala that given the ongoing strikes, it could meet guaranteed contractual deliveries only until the end of March and for the South African market until April which was already in the press and should be discounted by now.

The latest gold import and export figures from Hong Kong Census and Statistics Department, the special administrative region exported a net 83.6 tons of gold to the Chinese mainland in January. This figure may be less compared to export figures of December, but if we compare it to January 2013, it has been an exorbitant rise of 330 per cent.

Currently there are a lot of indicators for gold price movement-

- The US January core PCE price index

- The final February China HSBC manufacturing PMI

- The February flash PMI of the E18 in 3rd March

- The start of the Chinese NPC meeting on 5th March

-The monetary decision and announcements of the Bank of England and the ECB on 6th March

-The US nonfarm payrolls and unemployment rate of February slated to release on 7th March.

Political tension in Ukraine, uncertainty in Europe along with weak US data helped the price of gold due to increased safe haven demand. Next week should get more interesting data wise, as February numbers should come cleaner of winter effects.

Meanwhile, gold is expected to range between $1307-$1361 and Rs.29,500-Rs.31,000 in the international and domestic markets respectively. Whereas silver is expected to range between $20.55 to $22.00 and Rs.45000- Rs.48,000 in the international and domestic 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 - "The Changing China"

http://riddisiddhibullionsltd.blogspot.in/2014/02/the-changing-china.html