Markets wary of the war

Last week the yellow metal was all green over escalating tensions of the US China trade war. Early in the week, spot gold prices rose 1.1%, registering their best one-day percentage gain in nearly three months after China announced that it would impose retaliatory tariffs on a range of U.S. goods.
After Witnessing its biggest one day percentage loss in a month on Thursday, gold managed to stabilise at around $1286.27 an ounce.

Spot gold fell 0.8% on Thursday, its biggest one-day percentage decline in a month after risk sentiment improved.

Gold welcomed a series of key data, important numbers and crucial news over the week.

• The equities and dollar have boosted due to strong corporate earnings created pressure on gold as equities and dollar strengthened. A firm dollar, placed gold in the red marks. 
• Furthermore, U.S. stock indexes extended gains on upbeat earnings as well as robust economic data that underlined the strength of the domestic economy. Meanwhile, the dollar index hit a two-week high against a basket of currencies.
• The U.S. housing data showed home building increased more than expected in April, while unemployment benefits fell more than expected last week, pointing to sustained labor market strength that should underpin the economy.
• The pullback in risk aversion lifted treasury yields. The rise in yields underpinned the U.S. dollar.


Stronger dollar makes gold more expensive for holders of non-U.S. currency.
Meanwhile, Thursday’s fall in gold prices has worsened the technical picture for the metal. Gold is on its third negative trading day as it seesaws near $1276.50 ahead of the European open on Monday. Bullion traders were happy initially as reports concerning the geopolitical tensions between the US and Iran, coupled with the US-China trade pessimism was released.

Investors couldn’t take much leverage of the gains as markets alter shifted focus on Australia’s surprise election results and optimism surrounding the trade relationship between the US, Canada, and Mexico.

Continuing on last week’s sentiments, , Gold fell to a more than two-week low on Monday as investors preferred the safety of the dollar, with the currency underpinned by robust economic reports out of the United States, even as geopolitical risks and trade tensions persist.

Spot gold was steady at $1,277.86 an ounce during Monday’s trading session, having touched $1,273.22 for its lowest since May 3.
Some believe that the bullish trends have started hovering around gold. People have started diversifying their finance into equities and dollars. They are currently proving to be attractive modes of investments.

A strengthening dollar is creating pressure on gold, the dollar held strong over the following news-
• After strong U.S. housing data and a report pointing to lower unemployment helped the U.S. currency to mark its biggest weekly rise last week since early March.
• Renewed U.S.-China trade fears have also helped the dollar to mimic its trajectory from last year, when it was preferred to gold as a perceived safe-haven asset.
• Investment demand for gold failed to pick up. Even with geopolitical tensions, no safe-haven demand  emerged.

Gold will be an attractive safe-haven asset as rising trade tensions weaken the U.S. economy and drag down the U.S. dollar, according to a recent report from Morgan Stanley. U.S. President Donald Trump has until May 18 to decide whether he will impose a 25% tariff on car imports from the European Union. The deadline comes 90 days after the U.S. Commerce Department said in a study that auto imports pose a threat to American national security.

Apart from the current trade war there are some other factors that attract attention-

• Risk airing from the European Union economy
• Voting in the next crop of MEP’s
• OECD will probably downgrade its global economic outlook.
• The Fed might unnerve investors further by reiterating that hopes for a lifeline from monetary policy are almost certainly misplaced in the near term
• A speech from Chair Powell and minutes from May’s FOMC meeting will probably hammer home officials’ preference for a “wait-and-see” approach
•
Amongst all this, the trade war definitely acts as a wild card. Prices have proven to be responsive to the running commentary on negotiations from media outlets linked to the government in Beijing as well as US President Donald Trump’s Twitter account. Nonetheless any statement released from any side will run volatility waves into the market.

Dollar dependency reduces. Benefits gold

Why is gold being reconsidered as a mode of investment globally? Why is the dollar dependency reducing? Why are central banks world over piling up their gold reserves?

Well the answer to this looks simple but the reasons behind it are quite complex.

There are so many things happening in the international markets. Gone are the days where just The U.S. economy played an important role in influencing world market. Today there are many other factors that are responsible for the movement of equities, commodities and other markets.

This week too, while the dollar strengthened against the British Pound, gold premium eased in China. Where we saw weakening imports of gold in China on one hand, on the other bullion reserves rose in Russia.

Dollar against the pound - The British Pound was the worst-performing, adding to losses after the UK Parliament was unable to reach a consensus for an alternative Brexit strategy.

Arguably the best-performing major on Thursday was the US Dollar, which climbed alongside rising front-end government bond yields. This is despite a flurry of disappointing domestic economic news flow. US GDP missed expectations, clocking in at 2.2% q/q in the fourth quarter of 2018 against 2.3% anticipated and from 3.4% in Q3.

The U.S. dollar benefited Friday from sterling’s slide after parliament for the third time rejected Prime Minister Theresa May’s proposed deal to pull Britain out of the European Union.

The pound fell as much as half a percent to the day’s low of $1.2976. Sterling’s move led the dollar index higher, last up 0.07 percent to 97.274, helping it recover from an earlier drop on the weaker-than-expected report of U.S. inflation data, which added to the conviction that the country’s economy is losing momentum.

U.S. economic numbers - U.S. consumer spending barely rose in January and income increased modestly in February. The report from the Commerce Department also showed price pressures muted in January, with a measure of overall inflation posting its smallest annual increase in nearly 2-1/2 years. Consumer spending accounts for more than two-thirds of American economic activity.
With growth slower and inflation benign, Friday’s data bolstered the Fed’s case for ending its three-year monetary tightening campaign.

Spot gold was up 0.7 percent at $1,298.80 per ounce by the end of the week, testing resistance at the key $1,300 level.

Bullion was also set to notch up about a 1.2 percent gain for the quarter, helped mainly by a dovish U.S. Federal Reserve and concerns about the global economy.

However, gold was still bound for a second consecutive monthly drop, losing about 1 percent, which would be its biggest decline since August last year. The metal fell by about 1.5 percent on Thursday, the most in more than seven months.

Premium - Gold premiums in China eased in the past week as worries about a slowdown in the world’s top bullion consumer prompted some customers to hold off on purchases, while a price dip buoyed appetite in other Asian hubs.

In China, premiums of about $12-14 an ounce were being charged over global benchmark prices, a slight reduction from last week when they rose to the highest since March 2017 at $14-$16.
The country’s net gold imports in February via main conduit Hong Kong fell 13.6 percent from the previous month.

Gold Reserves - Central bank buying has helped support gold prices in recent years. Bullion has risen 20% since the start of 2016.

Within the span of a decade, Russia quadrupled its bullion reserves and 2018 marked the most ambitious year yet. And the pace is keeping up so far this year. Data from the central bank show that holdings rose by one-million ounces in February, the most since November.

The data shows that Russia is making rapid progress in its effort to reduce its dependency on the US dollar and to diversify away from American assets. Analysts, who have coined the term de-dollarization, speculate about the global economic impacts if more countries adopt a similar philosophy and what it could mean for the dollar’s desirability compared with other assets, such as gold or the Chinese Yuan.

For Russia, experts are starting to question whether it can afford to keep up its intense pace of buying. Some say the country will import more gold to guard against geopolitical shocks and the threat of tougher US sanctions as relations between the two powers continue to deteriorate. Gold buying last year exceeded mine supply for the first time. Still, others argue that Russia’s bullion demand is set to slow.

But it’s not single handed Russia that’s piling its reserves. Given the constant geopolitical unrest, more and more banks are shifting focus to the yellow metal, which leads us to conclude that gold prices are soon to rise further.

Dollar strengthens but sentiments for gold are positive

Gold started the week on its back foot, testing the $1,300 level mid week. The metal recovered sharply ending the week essentially unchanged. A key catalyst for the recovery in the USD gold price was the revelation that that Presidents Trump and Xi will not meet to resolve trade differences prior to the imposition of increased tariffs in March. U.S. President Donald Trump said last week that he had no plans to meet with Chinese President Xi Jinping before a March 1deadline to achieve a trade deal.

We continue to see the US China trade conflict, Fed and ECB actions as key drivers of equity and USD volatility, in turn driving investors to safe haven gold.

Concerns regarding the Chinese economy, weak growth and political tension in the Euro zone, Brexit and lingering global trade tensions are weighing in on market sentiment and the dollar is once more sought after as a refuge asset.

Investors strongly believe that there is much scope for gold to rise and they cite 3 main reasons for that-

• Geopolitical Risk. The U.S. trade war with China, the humanitarian crisis in Venezuela, and Britain's planned Brexit from the European Union are three examples of this. Each raises uncertainty for investors about the future, and that tends to make them anxious. Investors are also worried about the economic impact of U.S. government shutdown when global growth is already lean.

• High Stock Valuations. Investors are also increasingly wary of the stock market that's pricey relative to projected earnings. So, some investors are cashing in at least part of their stock holdings and sending some of the proceeds to gold funds. With stocks now showing signs of rolling over in response to trade talks concerns and a weaker growth forecast, gold should find enough support once again to prevent a serious challenge at support, currently at $1,300 an ounce, followed by $1,275

• Dollar - Gold is being pushed around by the U.S. dollar in the near term. Traders are getting out of anything to do with Europe on concerns of weakness in the region and going for safe-haven buying into U.S. treasuries, which is pushing up the dollar. But a possible shut down and impact of the US economy on its global counterpart, might make the dollar weak thus pushing gold further. 

• The Federal Reserve.  The Fed also seems to be at "an inflection point" when it comes to U.S. interest rates. He notes that the investment community went from expecting the Fed to boost rates multiple times this year to now perhaps making no increases in 2019. Lower interest rates tend to weaken the U.S. dollar and boost inflation risks, making gold more attractive. Gold and dollar are inversely related so whenever there is any negative effect on the dollar, gold prices tend to rise.

For gold, a lot of the recent action is largely dictated by the fact that the dollar is holding firm over the past two weeks. That has seen gold fall from resistance around $1,326 to current levels. But as long as the figure level still isn't breached, there's still favorable momentum to for gold to continue its upside run since November last year. We remain of the view that the $1,350 level is viable in the coming months, and note the $1,360 technical resistance level many market participants are watching.

Gold expected to outperform in 2019

Bullion hit a six-month high, nearing US$1,300 an ounce over the following concerns-

• Report showing a contraction in China manufacturing sent global stocks tumbling on 3rd January, 2019. 
• Concern over chains economic outlook
• Sinking factory gauges in Italy and Poland
• Wobbly U.S stock market
• Weaker economic data coming out of the European Union

Volatile stock markets, dollar swings and a global trade war sent gold on quite a market ride in 2018, from a high of $1366 an ounce in January 2018 to $1159 in August. Some were disappointed as they couldn’t make much of the dips or failed to enter the market at the right time.

Gold prices are still stuck in a trading range that it hasn’t broken away from over a couple of years. But analysts believe that this is the time to enter the market and change your strategies. It probably to best time own gold as 2019 brings some positive price rise in the yellow metal; Equity markets will expect high levels of volatility and its wild fluctuation towards the end of 2018 speaks all for it. Moreover the US government is sitting over huge debts and there are grave concerns that the economy will over heat. Moreover the Fed policy makers have been sending mixed messages as to how many times they will increase the rates in 2019. Keeping this in mind, it seems that it’s the perfect scenario for investors to seek safety in gold as it is expected to be the best performing asset in its class in 2019.

Gold might increase but with a lag

The yellow metal is down about 8 percent this year amid rising U.S. interest rates, trade disputes and the Turkish currency crisis, with investors parking their money in the dollar, which is being viewed as a safe-haven asset.

Firm U.S. dollar makes gold more expensive for holders of other currencies, with safe-haven demand for gold this year overshadowed by the metal’s relationship with the greenback
Gold's weakness in the international market is primarily on account of the US Federal Reserve's hawkish stance. It has hinted at four rate hikes this year and more next year. The US Fed is also shrinking its balance sheet.

On one hand the US Fed is raising rates and on the other hand central banks are doing completely opposite. This action is strengthening the dollar and hitting on gold.
An increase in rates is expected soon because the Fed believes that the US economy is strong enough to support a hike. This belief has led to an increased pressure on gold.

Following this sentiment, Gold prices edged down on Tuesday as the dollar hit a more-than-one-week high on the back of intensifying global trade tensions and economic worries in emerging markets.
Spot gold was down 0.3 percent at $1,196.90 an ounce during Tuesdays trading hours.

Many currencies world over have suffered setbacks against a strengthening dollar.

The dollar index, which measures the greenback against a basket of currencies, hit its highest since Aug. 24 at 95.410.

Now what will hold great importance for the dollar and the gold is the US economic data. Markets are closely watching the economic number, including a manufacturing survey on Tuesday and an employment report on Friday, which could influence gold’s moves this week as investors look for clues on the pace of U.S. interest rate increases.

Meanwhile, worries over an escalation in trade conflicts between the United States and other countries have kept participants in broader markets on the edge.

The threat of trade wars has only impacted currencies as of now. Analysts are expecting gold prices to start rising with a lag.

Currently we have been witnessing global economic crisis. This is making the other currencies weak and benefiting the dollar and time and again we have seen that any rise in dollar pulls down gold prices.

But if we see the domestic market, the gold dollar relationship is behaving in a very interesting manner.

Dollar and gold have an inverse relation so when the dollar strengthens, gold prices fall.

But when the dollar strengthens the rupee weakens, and a falling rupee offsets the fall in gold prices in India. So, while the price of gold may fall 7% in dollar terms, it may drop only 5% in rupee terms.
Any economic or political crisis results in an upsurge in gold prices and similar behavior as expected over the trade crisis between US and China. But it seems that gold’s rally has been totally offset by a strengthening dollar.

Analysts believe that gold could revive if the ongoing trade dispute between the US and China flares up into a full-fledged trade war. If the US economy suffers, gold would benefit from this.
Given the risks that exist today in the global economy, gold can prove to be a useful portfolio diversification tool and can help reduce overall portfolio risk.

Global inflation, rising interest rates, tightening of monetary policies by central banks, high crude prices are all positives for gold. 

Winds of change for Gold

Though gold has not performed as per expectations, we saw it glittering once again by the end of the previous week.

Friday saw the gold price pick up significantly to end at over $1,180 after spending much of the period in the low $1,170s, but the rise was almost all due to a turnaround in the U.S. dollar index which slipped back a little.

Dollar was going weak in the first quarter of 2018.This led to a rise in gold prices which reached above $1350 in April. There were positive sentiments for the yellow metal and traders expected it to cross $1400. 

But from mid April, with the rhetoric around the Trump trade tariff impositions taking centre stage, it all turned around. The dollar started to strengthen and the gold price, along with most other metal and mineral commodities priced in U.S. dollars, began to slip accordingly. As the tariff impositions moved from conjecture (many thought President Trump might be bluffing) to reality and counter measures were threatened and put in place by affected nations, the dollar started to rise and has not really looked back apart from the odd stutter since.

The same sentiment was witnessed in the past week. On 13 August 2018, the price of gold fell below 1.200 USD/oz, declining to a 1.5 year low. There are many factors that have triggered this down fall.
Even thought gold jumped up on Friday, the yellow metal is around $170 down on its peak earlier in the year. That’s over 9% down on the year to date and over 12% down from its peak.


Let’s have a look at the key influential factors-

Demand for US Dollar - Given recent market uncertainty – amongst other things due to the Turkish Lira crisis and other emerging market currencies being affected by the turmoil – investors have substantially increased their demand for the Greenback. It does not only serve as a "safe haven" currency, but it also offers a positive interest rate (e.g. 2-year US bills offering a yield of around 2.6 per cent). In the international context, this is a rather attractive combination from an investor's point of view. What follows is an appreciating US dollar and – as its flipside – a decline in the price of gold in US dollar terms.

Fed Rate Hike - the Fed's hiking cycle might be closer than the market expects. The reason lies in the growing international US dollar indebtedness. In the period of extreme low US interest rates, many foreign borrowers – in particular, those from emerging market economies – have taken on US dollar denominated debt. An appreciating US dollar causes them quite some trouble: It increases the costs of serving their debt. What is more, it makes rolling-over maturing US dollar debt more difficult: Lenders become hesitant to renew loans, and if they do, they can be expected to charge higher interest rates

Dependence on U.S Economy - Due to the high dependence of many economies around the globe on the US dollar, the Fed can no longer gear its monetary policy to the needs of the US economy alone. It can no longer ignore the consequences its monetary policy is most likely to have on other economies around the world. While the US economy may well need higher interest rates, many countries will have significant problems coping with US borrowing costs going up. As soon as the financial markets find out that the Fed cannot continue its US economy-centred monetary policy, there is a decent chance that the reserve currency status of the US dollar will be critically reviewed. So there is quite a possibility that the currently unshakable belief in the Greenback's safe-haven status will lose some of its shine.

But we can surely say one thing - The wind of change is definitely in the air for gold prices
After the Labor Day holiday in the U.S. in the first week in September things could start to change though as perhaps some of the trade war rhetoric will cool, China will come back to the negotiating table and the dollar index may ease giving gold some welcome respite.

Physical demand is coming back, which is a great sign for prices in the second half of the year.  Lower gold prices are starting to stimulate better physical demand, particularly from India. This might lead to rally in gold prices in the near future.

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 expected to end the year on a positive note

Spot gold, which is down over 6 per cent this year, is close to a one-year low of $1,211.08 touched on July 19 as the dollar powered to a one-year high on expectations of higher US interest rates this year.

Gold's appeal has been fading this year with prices sliding near to the key US$1,200 level, partly because of an upbeat outlook on the US economy that's strengthened the dollar.

Gold prices were higher on Friday, after disappointing jobs data pushed the U.S. dollar lower but still remained near two-week lows. A stronger dollar and rising interest rates have weighed on gold in recent months.

Gold prices are seeing just modest gains in the aftermath of a U.S. non-farm jobs number that did not meet market expectations.

The U.S. employment report for July showed –
• A significantly lower-than-expected non-farm payrolls rise of 157,000 jobs. The number was forecast at up 190,000, but after
• Wednesday’s ADP national employment report for July that showed a rise of 219,000, many were looking for a non-farm jobs number north of 200,000.

Markets believe that U.S economy is on its path of gradual progress and hence they didn’t react much to these numbers. One more reason for less volatility could be the vacation season in U.S and Europe that continue to keep the, markets calm until U.S. Labour Day holiday.

Even though these numbers were below expectations, it did strengthen the Federal Reserve action to gradually increase interest rates.

The Fed left interest rates unchanged on Wednesday, as expected, but pointed to the potential for increased rate hikes due to strong U.S. economic data.

Higher rates are a negative for gold as the precious metal, which does not pay interest, struggles to compete with yield-bearing assets when rates rise.

Furthermore, the metal saw some relief on Friday as U.S. hiring cooled in July and China moved to support its currency.

But markets are now positive towards gold. Many analysts believe that we are already at the bottom of this cycle for gold, and they believe that gold prices will pull up from here in the next 6 months.
Reasons being-

Trade War- the US and China imposed import tariffs on each other, fraying nerves on financial markets. A further escalation in the trade war crisis will definitely push up gold prices.

Demand- After a slow season in Mat, gold is all set to run higher during the coming 6 months over rise in its demand.

The above chart shows what happened towards the end of each of the past five years, as Chinese and Indians loaded up on gold for Spring/Summer wedding gifts and as savings for post-harvest cash. There’s no reason to expect them behave differently next time around.

Dollar dependency-  the analyst are convinced that gold will continue to grow in value relative to currencies, particularly as more states seek to rid themselves of their dollar holdings.

Gold Holdings- According to the latest estimates, Russia and China are in 5th and 6th place in total gold holdings, respectively.  The US is estimated to have over 8,100 tons of gold. Germany, which recently repatriated its gold from the US, is in second place, with 3,371 tons; Italy is in third with 2,452 tons, and France in fourth with 2,436 tons. Moscow's historical record in total gold reserves was reached in 1941, when the USSR stockpiled some 2,800 tons of gold just before the start of the Second World War.

Looking at the above mentioned events, we think that gold is expected to bounce back from its year lows and wil head positive towards the year end.

Bullish trends for Gold

Gold prices were holding well up during the past week breaking the long term downward trend that started off in 2011.  A weaker dollar and lower treasury yields has been supporting gold prices lately.
Gold steadied on Thursday after nearing a seven-week high in the previous session as investors awaited U.S. jobs data for further clues on the outlook for interest rate rises.Spot gold was 0.1 percent higher at $1,267.30 per ounce.

Gold rallied through most of July as the dollar fell on reduced expectations for a third U.S. rate rise this year. Inflation has been contained even though the labor market appears to be in its best shape in many years and despite double-digit U.S. earnings growth in the second quarter.

Reduced rate rise expectations tend to weaken the dollar, making dollar-priced gold cheaper for non-U.S. investors.

But by the end of the last week, gold prices were slightly bullish after the release of U.S labor report.
The latest non-farms payroll report on the US employment market was published, showing the economy added 209,000 jobs last month and that unemployment was low at 4.3 per cent, its lowest since March 2011.

This smashed economist estimates that 183,000 new jobs would be added. In response the dollar has popped higher, says Reuters.

The dollar is inversely correlated to the gold price, which is often held as a hedge as the global benchmark reserve currency.

Stronger economic data also raises the prospect of the Federal Reserve voting for a third rate rise this year in either September or December (rate rises tend to hurt non-income yielding assets like gold).
In the two hours after the report came out the gold price slumped by around $13, or one per cent, to $1,255 an ounce.

Gold's recent trend has been largely defined by the fortunes of the dollar, which is good news for gold bugs as the greenback was languishing near 15-month lows earlier this week.

The safe haven metal dropped from $1268 as the July non-farm payrolls figure came-in at 209K, beating the estimated figure of 180K. The jobless rate dropped to 4.3%, while the June trade deficit narrowed more than expected. Wage growth rose to 0.3% as expected.

Now the influential factor for gold remains that whether the dollar continues to strengthen or it may go weaker, which is likely to mean the US Federal Reserve has to remain less than hawkish. Apart from these financial drivers, any pick up in geopolitical issues could also fuel the rally.

Budget views 2017

From the previous budget to this year’s- Gold witnessed some key events in the domestic market.

They varied from politics to economic to geopolitical. Namely-

Demonetisation

Prime Minister Narendra  Modi made the surprise announcement on 8th November 2016 that the 500 and 1000 Rupees are just “worthless piece of paper”. The 500 and 1000 Rupees notes have been banned to fight back money and money-laundering. The new 2000 and 500 Rupees notes were released on 8th November 2016. The aftermath of demonetization, banks and ATM across the country faced severe cash shortages.

Goods and service bills passed

Goods and Services Tax bill were passed on 8 August 2016. GST is a proposed system of indirect taxation in India merging most of, the existing taxes into a single system of taxation. It would be a comprehensive indirect tax on the manufacture, sale and consumption of goods and services throughout India, to replace taxes levied by the state and central governments.

Surgical Strike Against Pakistan

The Indian said that it had conducted “Surgical Strikes against suspected militants in Pakistani-administered Kashmir on 29 September 2016. Lt Gen Ranbir Singh (DGMO) said that it had received “very credible and specific information” about “terrorist teams” who were preparing to “carry out infiltration and conduct terrorist strikes inside Jammu and Kashmir and in various metros in other states”. The Indian action was meant to pre-empt their infiltration.

But of the ones mentioned above gold was majorly affected in the year end by the announcement of demonetisation scheme.

Gold has been a beneficiary and even a victim of demonetisation. On a net basis, this demonetisation exercise as of now has been neutral for gold. As the demonetisation alarm bells rang, the rush to buy gold was almost immediate. As media reports suggest and also confirmed by gold import numbers, a lot of gold was sold on the night of November 8, as many rushed to buy gold with old notes. Post that, as the cash crunch hit the economy, there was a significant decline in discretionary spending including gold.

In many of our pre budget expectations over the past few years, we have always proposed to make the gold industry more organised. Fortunately, the demonetisation scheme, launching of a gold scheme and making PAN number compulsory for purchases of gold jewellery worth more than Rs 2 lakh shows the seriousness of government in making the making gold a commodity and thus channelizing it into a more organised way.These are signs of positive policy

After a neutral financial year for gold industry in India, all eyes were on the Finance Minister for the budget that was presented today- Feb 1st. This date marks the change in previous customary budget schedules which usually took place at around the end of February, usually February 28. The gold industry was hoping for a change from last few years of high import duties to a more reduced levy.

The industry was expecting a reduction in duty not onlyfor the interest of the dealers but also for the good of the common man.

However, there was no such announcement and duties have been unchanged. The budget is neutral for the gold industry and overall positive. On a scale of 1 to 10 I would rate this budget as 6.5.

Gold stabilises around $1130

The Federal Open Market Committee (FOMC) on Wednesday December 14 raised interest rates to a range of 0.5-0.75% from 0.25-0.5%, which was widely anticipated and was largely priced in by commodities and equities.

Modestly analysts believe that higher interest rates in the USA are not expected to have much of an impact on metal markets unless it reaches 2%.

And while higher rates could cause issues if they are raised too quickly or too high, this is not an immediate threat.

The markets have somewhat calmed down with gold hovering near $1130 an ounce.

Gold was trading calm in London on Thursday December 22 – where prices are stuck around $1,130 per oz while many investors are side-lined as the end of the year approaches.

It’smore of a holiday mood where US and Chinese markets willremain shut for Christmas. And hence business and liquidity is expected to dry up till New Year.

The spot gold price was recently indicated at $1,130.25/1,130.45 per oz, down $0.60 on Wednesday’s close.

Later on, prices fluctuated in a nominal range following important data realised during the week.

This week’s highlights were as follows-

• The US final third quarter GDP growth was revised upwards to 3.5% from 3.2% and
• Core durable goods orders increased 0.5% month-on-month in November, which was better than the forecast of 0.2%.
• Durable goods orders fell 4.6% month-on-month in November, still better than expectations of a 4.9% drop.
• Weekly unemployment claims, however, came in at 275,000 above consensus of 255,000.
• The November core PCE price index was flat against the forecast of 0.1%
• Personal spending was at 0.2% below expectations of 0.4%.
• CB leading index and personal income were both unchanged in November, and below their forecast of 0.2% and 0.3%, respectively.
• The US government bond market strengthened slightly on Wednesday, with the 10-year US bond yield closing at 2.53%, down from a recent peak of 2.60% last week.

The latest [US] data which has both positive and negative reflects the state of the current US economy. Taking into consideration the outlook for the US economy, future US economic data should trend towards improvement. This could provide some downward pressure for gold and silver.

Recent strong US macroeconomic data and sanguinity over president-elect Donald Trump’s prospective infrastructure spending plans have raised expectations of more interest rate increases in the USA next year. This has also enhanced the US dollar and increased appeal of risk assets like equities, while decreasing the attractiveness of haven assets like gold.

However, he gold price was a touch higher on the morning of Friday December 23 in London, finding some support from bargain hunting before the year-end holidays but lacking sufficient momentum for a marked breakthrough.

The spot gold price managed slight gains during Asian trading hours on Friday December 23 following the release of a range of US data on Thursday.
The momentum for precious metals has slowed but broadermarkets remain tough and positivity for 2017 remains high,

This reflected a moderate decrease in risk appetite on the back of growing political tensions between the US and China after President-elect Trump picked Peter Navarro, a China hawk, to run the US National Trade Council.

Precious metals are expeted to shine next year . Investors may continue to remove their bullish bets to take advantage of positive global risk sentiment and lower volatility across risk asset classes. But the level of contentment in the financial markets may take some participants by surprise early next year, which may trigger a strong rebound across the complex.

RSBL: A GOOD OPPORTUNITY TO BUY GOLD!!!

By Mr. Prithviraj Kothari, MD,RSBL

 

The last couple of years have been anything but normal for gold.  Back in early 2013, the Fed started augmenting its young QE3 debt-monetization campaign with aggressive jawboning.  It kept implying to stock traders that it was ready to quickly ramp up money printing if the stock markets sold off materially.  This short-circuited normal healthy sentiment re balancing sell offs, as traders feared nothing.

Thus the stock markets levitated, powered higher without normal material sell offs.  Since gold is an alternative investment that moves contrary to stock markets, this slowly strangled gold investment demand.  Investors gradually abandoned it, leaving this metal for dead.

FED's exiting the zero interest rates is a big point of debate for US economy. But frankly I do not think this is the only challenge we are talking about. To me, the unwinding of trillions of dollars used to purchase Bonds by the FED is more of a concern. Less than a year from now, FED will have take one of its biggest decisions of reinvesting $200 billion (approx) which are the proceeds from Treasury debt that is supposed to get matured in 2016. 

I did get some more idea by going through some news on the same:
 
1. If FED does not invest, it could lead to an increase in supply of security products available to the investors and put an upward pressure on yields.

2. If they plan to let it expire, it will shrink FED's balance sheet drastically leading to monetary tightening from increases in the benchmark interest rate officials envision for this year. That could mark a reversal of easing that FED achieved when it started its bond purchases programme after the recession.

For this week, Gold advanced for the first time in four days after holdings in exchange-traded products backed by bullion posted the largest increase in more than six weeks. On Thursday, gold-backed ETP holdings rose by 3.9 metric tons, the most since Feb. 23, to 1,620.1 tons, according to data compiled by Bloomberg. Holdings in the SPDR Gold Trust, the top bullion ETP, had the biggest jump in two months. This jump in holdings shows that there is some movement out of the conventional assets into gold.

CFTC data released on Friday showed that speculators sharply increased their bullish bets last week. The net weekly gain of 20,738 contracts was quite balanced from 10,312 of new longs and a 10,426 reduction of shorts. This increase brings the net position to +100,000 for the first time since March 3rd. This was also the third straight week of gains there.

But a good sign from Eurozone did come on Tuesday, where its private sector continued to improve in March with Markit's final composite PMI rising to 54.0 in March from 53.3 in February, an 11 month high.

Following suit, gold prices stabilized above $1200 on Friday although the markets watched the surging dollar. The dollar index remains strong at around its highest in three weeks – it was last at around 99.30, having earlier touched 99.69. The US currency has gained ground following the release of the mildly hawkish minutes from the March meeting of the US Federal Open Market Committee (FOMC) earlier this week.

The spot gold price was last at $1,207/1,208 per ounce, up $12.80 on Thursday’s close. Trade has ranged from $1,193 to $1,210.8. This does seem to be a pyschological boost for the boost.

To bottom it up, we saw gold getting support on Monday; post the weak jobs report that were released last Friday. Moreover, the dovish comment from New York Fed President William Dudley, gave gold the further push in prices. Furthermore, a weaker U.S. dollar provided underlying support for bullion. There may be more scope for bullion to rally.

Precious metals are highly sensitive and react instantly to the following

• Changes in monetary policy expectations,
• Fed's decisions
• Dollar prices
• Geo political crisis.

But currently what matter the most for the market watcher is - when the Federal Reserve will make its first move on rate and potential political fallout of Greece leaving the Eurozone.

Investment Tip: 
If gold breaks $1225 an ounce then it can be considered a good opportunity to buy in the market.

TRADE RANGE:

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1188- $1224 an ounce	Rs.26,500 - Rs.28,000 per 10 gm
SILVER	$16.15- $17.30 an ounce	Rs.36,000 - Rs.38,000 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 -
"Playing Games With Gold"

http://riddisiddhibullionsltd.blogspot.in/2015/04/playing-games-with-gold.html

GOLD TO REACT TO FOMC

- By Mr. Prithviraj Kothari, MD, RSBL

 

Gold has been trying to find itself. It was at its peak in 2011-12, touching a lavish bull level of $1900. But in the last one year, gold prices have been falling, hovering around $1000 these days.

The ones who were bullish for gold are now speechless. Some supporters of gold have even lost faith in it. 

Though gold has been just above they key areas of $1150, there more downside risk for the yellow metals as the dollar continues to strengthen ahead of the Fed’s policy-setting committee meeting on March 17-18.

The dollar hit its highest in nearly 12 years on Friday and is widely expected to reach parity with the euro, due to the gap between U.S. and European interest rates.
Ahead of an expectation of an interest rate hike, a stronger dollar has been clouding over the positive outlook for gold.

A stronger than expected U.S Jobs report last week had raised expectations that the Fed would hike interest rates soon. Since then gold has taken a beating.

Gold was consecutively down since 8 days, falling more than 1 per cent on Wednesday. Gold has been strongly influenced by a robust dollar and expectations of higher U.S. interest rates.
The metal was headed for its sixth weekly loss in the past seven, down 1 percent so far and having hit its lowest in more than three months at $1,147.10 on Wednesday.

Following these negative sentiment, holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 0.28 percent on Thursday to 750.95 tonnes, the lowest since January. It had been three weeks since the fund saw any inflows.

Moreover, cutting the appetite for gold was last week's stronger than expected U.S. non-farm payrolls data that renewed expectations the Federal Reserve would begin to increase U.S. interest rates in mid-year.

A strengthening dollar makes dollar denominated assets like gold more expensive for holders of other currencies thus making gold unattractive.

After breaking a nine day lowering streak, gold prices managed to stay positively stable on Friday, Spot gold was up 0.1 percent at $1,154.35 an ounce during the day.

*Source-www.kitco.com

Analysts have noted that gold and silver have struggled all week as investor and traders piled in the U.S. dollar, driving it to a 12-year high. They add that the trend does not look like it will end soon.
The key event for financial markets next week will be the Federal Open Market Committee meeting, which will release its monetary policy statement Wednesday.

In the week, market player will be closely keeping a watch on the Federal Reserve as analysts are expecting gold to suffer on the back of a stronger U.S. dollar as the central bank prepares for an eventual rate hike.

However, the eventual rise in interest rates will cap any rally in gold next week.
Although the FOMC meeting will garner most of the market’s attention, other economic reports that could be market moving include regional manufacturing to be released Monday and Thursday as well as some housing data at the start of the week.

TRADE RANGE 

METAL	INTERNATIONAL	DOMESTIC
GOLD	1130$-1200$ an ounce	Rs.25,500- Rs.26,500 per 10gm
SILVER	15.23$- 17.00 $ an ounce	Rs.34,000- Rs.37,000 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 -

Topic- " An Upbeat Dollar Beats Up Gold"

http://riddisiddhibullionsltd.blogspot.in/2015/03/an-upbeat-dollar-beats-up-gold.html