By Mr. Prithviraj Kothari, MD, RSBL
So far 2016 has been subjugated by the fall out in Chinese equities and the consequent short selling of other asset classes as a proxy hedge.
Gold continued to rally this week as
it gained by the strengthening of the yen which suggests that there is constant
safe haven buying which does not fit too well with the pick-up in equities and
industrial metals this week.
Gold
soared 1 percent on Wednesday, breaking a three-day losing streak to trade
above the key $1,200-an-ounce level as Asian shares and the dollar slipped.
Bullion
rallied to a one-year high last week after a stock market rout boosted demand
for the yellow metal as a safe haven, but has since given up some gains as
equities steadied. With stocks slipping again on Wednesday, gold was back in focus.
Speculation has increased in recent days that the Fed might resort to negative interest rates to stimulate the economy after Fed Chair Janet Yellen said last week it was an option that would not be taken "off the table." Lower or negative rates would boost demand for non-interest-paying gold. Concerns remain that gold could correct further as some
Analysts say gold gained too much, too quickly.
The gold price fell during Asian
trading hours on Friday after rallying overnight to a week’s high of $1,240.10
per ounce. But see the yellow metal remained well-supported on global economic
uncertainty.
Spot gold was last at
$1,226.70-1,227 per ounce, down $3.80 from Thursday’s close.
The gold price had rallied overnight
following a pull-back in US equities and weaker oil prices.
Recently the analysts and market players
have become more alarmed about
- The state of the global economy and
- The risk of debt default and
- Equity weakness
Gold’s positive and negative movements
over the week were influenced by the following-
Oil Prices- Oil prices had risen
more than 14 percent this week after Saudi Arabia, Russia, Venezuela and Qatar
said they would freeze oil output at January levels as long as other producers
also participate. Iran’s oil minister had welcomed the plan but did not commit
to it.
The oil price rally also halted
after Saudi Arabia’s foreign minister was reported as saying that Saudi Arabia
was “not prepared” to cut production, scuttling hopes of a deal by major
producers to cut output in an oversupplied market.
Global Economic growth- Global
economic growth remains friable with the Organization for Economic Cooperation
and Development (OECD) cutting its global growth forecast on Thursday by 0.3
percent to three percent for 2016 as it warns of slowing economies in Brazil,
Germany and the US, and exchange rate volatility in some emerging markets.
The OECD on Thursday reports that
some emerging markets are particularly vulnerable to sharp exchange-rate
movements and the effects of high domestic debt.
Economic Data- Major economic data
released on Thursday was mixed with a slight negative bias. China’s January PPI
was -5.3 percent, a gentler decline than the forecast -5.5 percent and
December’s -5.9 percent. January was the 47th straight month of decline,
however.
Weekly US unemployment claims came
in at 262,000, below the forecast of 275,000 and under the psychological
300,000 mark. The Philly Fed manufacturing index for February at -2.8 was close
to the -2.9 estimate.
But the US CB leading index
disappointed at -0.2 percent against a forecast of -0.1 percent Meanwhile in
data, US CPI and Core CPI month-over-month in January came in unchanged and an
increase of 0.3 percent respectively, both were above forecasts of a -0.1
decline and 0.2 percent gain.
Gold Demand- Physical demand slowed
during the Chinese Lunar New Year, but global demand is also suffering as
consumers and well-stocked jewellery manufacturers hold off while waiting for
the price of gold to drop, according to multiple gold traders.
The gold price increased modestly
for the third consecutive day as a safe-haven rally is being thwarted by weak
physical demand.
Monetary policies- Market
participants also await further monetary decisions out of the Eurozone and
China, which has drawn closer scrutiny after the Japanese central bank decided
to lower nominal interest rates into negative territory for the first time in
history.
A lack of inflation and threats of
another global recession has led central bankers to adopt looser monetary
policy and aggressively combat sagging growth.
Market participants appear content
to wait until monetary decisions out of the Eurozone and China become clearer.
The recent decision by the Japanese
central bank to lower interest rates into negative territory has led other
regions to consider the same action.
A lack of inflation and threats of
another global recession are forcing central bankers to adopt looser monetary
policy and aggressively combat sagging growth.
Till then we need to wait and watch and this seems to be the
only mantra as the mart once again stands divided into a bear v/s bull market
for gold.
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 -
" Gold Glitters All The Wayl: RSBL"
http://riddisiddhibullionsltd.blogspot.in/2016/02/gold-glitters-all-way-rsbl.html
http://riddisiddhibullionsltd.blogspot.in/2016/02/gold-glitters-all-way-rsbl.html
