Gold - Half year analysis

We are half way through 2018 and we have already seen gold showing some interesting movements.

The first half of 2018 has been quite action packed for global financial markets. In US and Asia, most of the growth was captured by tech stocks. Equities experienced a few pullbacks during the first 3 months as geopolitical tensions increased. So far, investors seemed to have shrugged off the escalating trade war rhetoric between the US and many of its trading partners.

Gold was up by more than 4 % in the first few months of the year, but finished on a negative note by the end of June. This downward trend continued in July as gold dropped further. Though gold was volatile till the first quarter, it has been moving in a relatively low range since.

The three main reasons being-

• A strengthening US dollar
• Soft physical demand for gold in the first half of 2018
• Higher investor’s threshold for headline risk

Now coming to the second half of 2018. This year, there are plenty of factors which could lead to a medium-term gold price reset which could put that $1,400 price target back in its sights. This may sound over optimistic, but a lot of hope in being built mainly over the belief that we still have 6 months and of those, a lot of things are expected to happen over the second half.

We see a lot of factors that can reset gold price to $1400, we can broadly categorise them into 4 groups-

• Economic development and capital growth
• Global market uncertainties
• Capital flows and price trends
• Competing assets

So now where do we see the yellow metal in the coming months? Well we think that the outlook for gold will mainly be influenced by a few macro trends-

TRADE WARS AND THEIR IMPACT ON EXPORT IMPORT- President Trump’s planned tariff impositions against imports from China and elsewhere have been seen as positive for the dollar and the U.S. economy.  No matter that these tariffs are potentially inflationary in the domestic marketplace and that tit-for-tat measures being imposed on American exports could be very damaging to certain targeted U.S. exporters.

The counter tariffs being put in place could also see a downturn in export-oriented company stock prices, which could lead to a drift downwards in other equities and a drift down could spread to become a rout given the seemingly overbought state of the markets. Thus will have a positive impact on gold and may well push prices high.

EQUITIES - The long equities bull market, which does seem as though it may have come to an end this year, is seen as at least partly responsible for the lack of interest in precious metals investment.  A serious downturn in equities could thus drive investors back in the perceived safe havens of gold and silver.

An equities collapse, which many commentators have been predicting, could initially bring precious metals down with it with investors and funds struggling for liquidity and needing to sell good assets to stay afloat.  We saw this in the big market downturn in 2008, but gold, in particular, recovered any losses quickly and was rising when equities were still turning down.  This is a pattern which could well be repeated.


INCREASED GOLD HOLDINGS - Gold may well be one of the mechanisms being used to help reduce reliance on U.S. denominated reserve assets – certainly by Russia and probably by China which shrouds its central bank gold holdings in secrecy.  But even so this seems to be having little or no impact on the gold price at the moment – but it could have implications in the longer term.

In the long term we do feel that gold has a good future with falling supply and rising demand.  The big question is when will the price turn back upwards again?

Some say soon, while some still support the bears market. But we cannot ignore the fact that a lot can happen in the markets in five and a half months.  We would expect the dollar to start to fall back as the true impact of the Trump tariffs begins to be felt.  U.S. Fed Chair Jerome Powell’s latest fairly optimistic statement to Congress, seen as responsible, at least in part, for the latest gold price dip, in reality only confirmed what had been said before.

We think there’s a good chance that this will happen sometime in the final four months of the year and we might see the gold price reaching $1400 level by year end.

Many competitors for gold in 2018

Gold began 2018 on a firm note on Tuesday after prices hit their highest in more than three months, supported by technical factors after breaking above $1,300 an ounce last week.

Spot gold rose 13 percent last year to mark its best annual performance since 2010. A wilting U.S. dollar, political tensions and receding concern over the impact of U.S. interest rate hikes fed the rally.
The greenback, in which gold is priced, had its worst performance since 2003 last year, damaged by tensions over North Korea, questions over Russian involvement in U.S. President Donald Trump’s election campaign, and persistently low U.S. inflation.

 The dollar’s drop to three-month lows versus a basket of currencies on Friday lifted gold to its highest since mid October. In the last couple of weeks, trade has been relatively thin, yields have been under pressure and the dollar as well, so gold has profited from that.

Preceding real yields, dollar is the most important driver for gold. And it was the dollar’s weakness, which even a Fed rate hike was unable to pull down gold prices. Even though the rates are hiking, the dollar I not benefiting from it.

On the other hand, Gold has clearly benefited from lower U.S. yields and a much weaker U.S. dollar into the year-end. Gold has risen more than $70 from nearly five-month lows hit in mid-December.
More than half of the $70 rally came in the last week, during the holiday period.

However, on Wednesday there was a slight halt to this rally as we saw the dollar strengthening over the release minutes of the FOMC meeting (that was geld on Dec 12-13)

The Fed’s minutes acknowledged the U.S. labor market’s solid gains and the expansion in economic activity, even as they affirmed policymakers’ worries about persistently low inflation. That suggested the central bank will continue to pursue a gradual approach in raising rates but could pick up the pace if inflation accelerates.

Fed officials also discussed the possibility that the Trump administration’s tax cuts or easy financial conditions could cause inflation pressures to rise, leading to some dollar-buying, analysts said
The dollar rallied on Wednesday on upbeat U.S. manufacturing and construction data and after minutes from the Federal Reserve’s last policy meeting showed the central bank remained on track to raise interest rates several times this year.

Snapping a three-week losing streak, the dollar hit session highs against the euro and yen after the minutes from the Fed’s Dec. 12-13 meeting. The dollar index posted its largest daily gain in more than two weeks.

Gold eased from an earlier 3-1/2 month high on Wednesday and was on track for its first day of losses in nearly three weeks as a firmer dollar pressured assets priced in the U.S. currency.

Currently, gold seems to rise steadily in 2018. There are many important competitors for gold that will surely play a significant role in its price movements-
• Equities- The biggest competition for gold in the New Year will be equities, but if gold prices continue to hover over $1,300 then investors would surely be interested in diversifying their portfolio towards the yellow metal.
• Bond yields- Another important factor for gold next year will be bond yields, but noting that he sees limited impact in the long-term.
• Inflation- With inflation expected to rise, that investors need to be more clear as to real interest rates will push higher or remain at current low levels.

Looking ahead, it is difficult to determine if gold will hold these holiday gains when traders come back in full force in the New Year.

BEST QUARTER FOR BULLION SINCE THREE DECADES: RSBL

By Mr. Prithviraj Kothari, MD, RSBL

Gold, one of this year’s best performing assets, has room to extend its advance, according to top-ranked forecasters, even as the rebound shows signs of losing steam.

While we see gold being one the best performing asset in its class in 2016, we also this year to be one of the best performing years for gold in the past 3-4 years.

Bullion had its best quarter in almost three decades through March after the metal regained its haven status amid volatile financial markets, the spread of negative interest rates and as the Fed pared back expectations of further rate increases. Holdings in exchange-traded funds have climbed about 20% this year and there appears to be a return of confidence.

While gold has strengthened since the start of the week, putting an end to last week’s selling pressure, it has underperformed the rest of the precious metals as speculative positioning is overstretched on the long side

When markets are volatile and sentiments are confusing, we see more than ne factor influencing the prices. The same has happened with gold. This week there was more than one factor that as responsible for the ups and downs in gold. Let’s have look at each of these individually.

ETF- In paper holdings, gold ETF’s tracked by Fast Markets remain near their 2016 high – stood at 1,806 tonnes as of April 21. Investors poured $13.6 billion this year into exchange-traded products tracking precious metals, data compiled by Bloomberg show. That’s almost 80% of the total inflows into commodity ETFs in 2016. This gave a boost to gold prices.

ECB- On Thursday, the outcome of the European Central Bank meeting was as expected when it kept its current monetary programme unchanged.

The gold price was relatively flat during Asian trading hours on Friday after the European Central Bank (ECB) kept its monetary policy unchanged at its Thursday meeting as expected.

Spot gold was last at $1,250.00-1,250.20 per ounce on Friday, up just $0.50 from Thursday’s close.

But ECB president Mario Draghi warned that deflationary signals remained despite negative interest rates and billions of euros in asset purchases, while economic growth stays “tilted to the downside”.

In March, the central bank lowered nominal interest rates further into the zero-bound, citing concerns of deflationary pressure and a divergence between the northern and southern economies.

Dollar- Gold held its ground despite a stronger US dollar following the unexpected fall in US unemployment figures. With ECB policymakers holding interest rates unchanged, there was little to excite investors,” said ANZ Research on Friday morning.

The US dollar index had recovered to a three-day high of 94.70 on Thursday, but slipped 0.15 percent to 94.49 so far on Friday

Gold futures dipped Friday morning in the US, with a strengthened dollar and increased risk tolerance combining to weigh on prices.

US Report- in US data released Thursday, weekly unemployment claims between 7-14 April came in at 247,000 below the forecast of 265,000 and the lowest since November 1973.

The Philly Fed manufacturing index, however, was at 1.6, a stark divergence from the 8.1 estimate. The CB leading index month-over-month in March slipped to -0.2 percent, off the estimate of a 0.4 percent uptick.

Other markets- demand concerns in China and emerging markets weighed on global growth.

Earlier, Japan’s reading came in at 48, below the previous figure of 49.1, while PMIs from across the Eurozone were mixed.

Turning to International markets, Germany’s DAX and France’s CAC-40 were down 0.6 percent and 0.5 percent respectively, while the dollar strengthened 0.4 percent to $1.1253 against the euro.

While the current risk-on environment – evident in stronger equities and lower volatility – is exerting downward pressure on safe-haven demand, bullish factors like a weaker dollar and stronger oil price continue to prevail.

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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 -

"Why Gold Is Sill Cheap" 

http://riddisiddhibullionsltd.blogspot.in/2016/03/rsbl-why-gold-is-still-cheap.html 

BULL V/S BEAR FOR GOLD: RSBL

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

GOLD BOUNCES BACK: RSBL

 By Mr. Prithviraj Kothari,MD, RSBL

Christmas seems to have come in early for gold as it finished the week on a strong note, ending a six-week losing streak and bouncing off a fresh 5 and-a-half year low.

After hitting a 5.5-year low earlier this week, Gold prices prepared to end Friday's session on a very upbeat note, with the metal up 2% during the day.

The magic move happened despite a relatively in-line November jobs report that all strengthened the expectations that the Federal Reserve will raise rates after its monetary policy meeting December 16.

Gold’s rally started in earnest Friday, following the release of November’s nonfarm payrolls report, which was relatively in line with expectations.

Because expectations of a rate hike are close to fully priced into the markets, many investors and traders are starting to doubt whether the U.S. dollar can move higher under current market conditions, prompting them to take profits in their long U.S. dollar positions.

Good news for gold also came in when the Euro rebounded over the announcement of a minimum cut in its deposit rate over the disappointing market by the European Central. The central bank eased its monetary policy, dropping its deposit rate to negative 0.30% from negative 0.20% on Thursday.

The rebound in the euro, following the ECB’s monetary easing that was less than expected, pushed the dollar index down to 97.59, last at 98.30 and that seems to be helping to underpin the metals.

Markets eagerly awaited the US employment report that is likely to be the next directional influence on the dollar and markets generally. 

The gold prices recovered after falling to fresh five-and-a-half year lows during Thursday morning trading after Asian participants reacted to the strong US job data from the previous session.  

Spot gold was indicated $1,053.20/1,053.50 per ounce, down $0.80 from Wednesday and off its session low of $1,046.40, its lowest since February 2010 – market participants largely expect the US FOMC to increase interest rates this month. 

The Bureau of Labor Statistics, on Friday,  said 211,000 jobs were created in November, down from October’s upwardly revised number of 298,000; September's employment report was also revised higher to 145,000, from the previous report of 137,000. The report noted that 35,000 more jobs were added in the previous two months as a result of the revisions.

According to consensus estimates, economists were expecting to see job gains of 200,000.

Over the past 3 months, job gains have averaged 218,000 per month. As expected the unemployment rate held steady at 5.0% last month; at the same time the participation rate was little changed at 62.5%.

As anticipated the U.S. labor market cooled off a little in November after seeing immense gains in the previous month; however, the job growth still managed to slightly beat outlooks, according to the latest employment data from the Labor Department.

It was one of last few data releases before the Federal Reserve meets in two weeks to decide whether to raise interest rates and these reports will play a significant role for the same.

This raises expectation that the Fed has a go ahead signal to increase interest rates on December 16 as long as other things remain steady globally over the next few weeks.

Yellen has been adamant about raising rates before the year concludes, citing concerns over an expedited tightening cycle if the policy-board waits until 2016.

With another two weeks to go before the Federal Open Market Committee meets to discuss raising rates for the first time since 2006 the market remains focused on the expected positive impact such a move might have on the dollar together with the subsequent negative gold impact. Taking a look at the past four rate hikes we actually find that instead of rising, the dollar has weakened in the weeks and months following the first announcement. 

While this time round may be different considering the expected diverging trajectories of the ECB and FOMC it nevertheless raises the risk of a correction both on dollar longs and gold shorts. Not least considering the big jump in positioning seen in both markets during November.  

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 -
"Critical Week For Gold: RSBL"
http://riddisiddhibullionsltd.blogspot.in/2015/11/critical-week-for-gold-rsbl.html