Investors Increasing Their Gold Exposure

When some people just started writing off gold last week stating that it was a bubble, the yellow metal once again proved its opposition wrong.

Though gold consolidated in a narrow range of $1528 to $1493 till Thursday, it did manage to pop up on Friday.

Gold has risen nearly 8% so far this month and about 19% this year, and was set for a fourth straight week of gains.

Gold prices rose by 2% on Friday as investors construed U.S. Federal Reserve Chair Jerome Powell’s speech as leaning toward a dovish monetary policy stance and President Donald Trump’s latest comments exacerbated trade tensions with China.

Powell said the U.S. economy is in a “favourable place,” but gave few clues about interest rate cuts at its next meeting. However, he listed a series of economic and geopolitical risks the Fed is monitoring, noting these were linked to the trade spat.

Spot gold rose 1.9% at $1,526.60 an ounce on Friday, shaking off slight headwinds ahead of the Fed Chair’s speech.

Prices earlier rose to $1,528.79, the highest since Aug. 13, when spot gold had scaled a six-year peak of $1,534.31.

Contradicting to the price rise, data released showed that US jobless claims dropped 12,000 to seasonally adjusted 209000 for the week ended on Aug 17. The IHS Market Flash Purchasing Managers Index came at 49.9 below 50 levels for the first time since Sep 2009. The yellow metal hits an intraday low of $1493.44 and is currently trading around $1495.99.

Markets were eyeing US Fed Chair Powell's speech in Jackson's hole symposium for further direction.

Some early comments revealed that FED is going to be dovish but not outright one and the rate cut won’t be on accelerated mode.

The US 28.10y yield inversions are the real headache for economists whether or not the recession is coming now.

But the real culprit might be the USD-CNY i.e. Yuan on its depreciating fast and sooner it would be bringing more uncertainty and uncertainties are the best time to put money into gold.

Trump tweeted on 21st August that he is hoping a china deal. Fed minutes revealed all expected scenario and two of the members of the Fed actual wanted. 50% rate cut and finally did.25% last month and overall commentary was dovish and more centred around global economic weakness. Trump also ratcheted up the rhetoric on China, ordering U.S. companies to look at ways to close operations in the country, which sent equities tumbling and drove further inflows into safe-haven gold.

This came after China unveiled retaliatory tariffs against about $75 billion worth of U.S. goods.

The fact that Powell said that they (the Fed) will act appropriately to sustain expansion is pretty bullish for gold. The two primary tools they have are quantitative easing (QE) or lower rates - both those tools will cause gold to go higher

Powell’s speech prompted a backlash from Trump on Twitter, asking whether the Fed chair was a greater “enemy” than China’s leader Xi Jinping.

In normal times, investors need lower prices to persuade them to park their money for ten years, but when trouble is brewing, they are prepared to pay more for a secure long-term home for their cash.

Conventional thinking has it that gold, along with other “hard assets” such as real estate, flourishes when an economic boom, with attendant inflation, is driving investors and traders away from conventional securities such as cash, stocks and bonds and towards investments likely to hold their value.

There are three reasons why we believe that now is the right time to think about increasing gold exposure.

The first would be that broad market valuations are high, which would suggest that equity returns over the next decade could be lower than in the past decade. Historically, that has often coincided with strong returns for gold and gold equities.

Secondly, the case for the US dollar over the coming decade is weak. Primarily, this is the function of very large US deficits. Again, when the dollar is weak historically gold has performed well.

Finally, the most important; there are global macro policy risks. These are as likely today as at any point since the Second World War and the cause of that are record-high global debt burdens.

The risk here is that macro policy responses could continue to be unconventional and potentially become more extreme, driving real interest rates very low or even negative.

So as per our Managing Director Prithviraj Kothari's opinion, gold seems to be the best option to park your funds.

Gold Might Perk In the Near Future

We all know that when gold prices rally, all market players join the bull’s bandwagon. Currently, also markets have not left a single stone unturned in proving the fact that gold will touch $2000 an ounce by year-end and cross Rs. 40,000 per 10 gram in the domestic market.

Well, it’s too early and even very difficult to predict even the near term gold price movements because there is so much happening around that stabilizing gold prices seem to be a far reality.

There are three reasons why gold has popped in the last several months -

• Recession risks that have gone up.
• Rates that have been trending lower
• 10-year real yields have gone from 1.2[%] to 25 basis points.

Last week following dovish comments from New York Fed President Williams gold prices traded above U.S. $1450. Less than a day later a spokesman for the New York Fed “clarified” Williams comments saying they were not about immediate policy direction.

If you found last week’s dovish Fed message followed by the backtracking in follow up news articles confusing you are not alone Geopolitical risks from the Persian Gulf could provide some support for the yellow metal, but the next major move will likely be if the Fed is dovish enough for markets. Last Friday, with US Iran tensions escalating, precious metals were seen at new 2019 highs.

Currently gold is at a 6,5year high but it couldn’t sustain. The $1415- $1420 in general is good support to revisit towards $1450-$1460.

After five years of being stuck in a trading range, gold prices have broken out in the last six weeks, igniting a rally to multiyear highs. Prices held near those highs on Monday as investors awaited word from the Federal Reserve about whether the central bank would cut interest rates at its next meeting.

Making the decision less clear cut, tensions between the U.S. and Iran continue to escalate, and with market pricing set at more reasonable levels, there is room for both the ECB and FOMC to deliver a dovish surprise at their upcoming meetings.

The year of 2008 brought 350 basis points of softening into US rates. And then it took a full seven years for the Fed to make another move when the Yellen-led Fed posed her first actual adjustment to the discount rate. Another hike followed in 2016, a little over a month after the US Presidential Election; and then a full seven rate hikes followed in 2017 and 2018. Suffice it to say, this was a stark change-of-pace to a market environment that many had come to rely upon.

Joining these series of events, 31st July at 11.30 pm (IST), The Fed verdict will be stamped and till these 8 days, the markets speculation will also continue.

On Tuesday President Trump stressed his point to US Fed to initiate a sharp interest rate cut. Rather his recently appointed Fed member Shelton advocates for 50bps cut.

So whatever happens on 31st July, gold is still expected to perk as dovish statements will be associated with the event.

In summary, despite the possibility that the current pullback has further to go, our managing director, Prithviraj Kothari feels that the uptrend in gold is likely to re-establish itself with potential towards the next upside target of U.S. $1480/1500.

Mr. PRITHVIRAJ KOTHARI (MD, RSBL) MAKES GOLD PRICE PREDICTION FOR THE YEAR 2016

(Brief details are given below. For full detail, view the embedded You Tube video) 

Link to the video: https://youtu.be/0vUYZf9M1RQ

QUESTION 1: After 2 consecutive years of negative returns, what is your Gold Price Forecast for 2016?

Prithviraj Kothari: I do agree that since couple of years there is a downward trajectory with respect to Gold prices, since it had been increasing for almost 11 odd years. But according to me a range of $1050 - $1070 an oz is the cost to the mines to procure Gold. Looking at that figure, I find it difficult for the price to go below this range. I see an increase to the extent of 7% to 8% compared to last year in the year 2016.

QUESTION 2: How will it translate in the Rupee term?

Prithviraj Kothari: In rupee term, gold price may hover between Rs 24,000 and Rs 30,000 per 10 grams.

QUESTION 3: What impact do you envisage on gold following the US Fed’s interest rate hike?

Prithviraj Kothari: A 25 bps interest rate hike after a decade in 2015 followed by four such hikes in 2016 by the US Fed has already been factored in with the price of Gold. If you see the price of Gold eventually appreciated when the rate hike took place. A bottom line could be $1000 to $1050 at the most in the line with the mining costs.

QUESTION 4: What impact do you see of high import duty on gold import into India?

Prithviraj Kothari: Indian population is around 125 crore with consumption less than 1gram, bringing import figure to 850-900 tons. With present import duty of 10%, it has created big gap between International price and Indian price. This import duty almost comes to INR 250,000 per kilo. Usually, import of gold has been in the range of 800 to 900 tons per year. Last year gold smuggling was around 200 tons. The increased price gap may give rise to increase in gold malpractices.

QUESTION 5: Do you see any impact of Government related Gold schemes? Would they be beneficial?

Prithviraj Kothari: I am positive with government efforts & schemes. Gold Monetization and Gold Sovereign Bond schemes are good. Gold Monetization scheme will be worthwhile, if it can draw 1000 tons or even 500 tons of gold from temples, public etc. will also have impact on international price. It should happen gradually.

QUESTION 6: India’s gold import has been diverted towards Dore. Would it really help gold jewellery industry at large?

Prithviraj Kothari: It depends on import. Dore import is processed in limited refineries to manufacture pure gold. These refineries import Dore at $2 lower. Those jewelers will be benefited by $3 to 4, who make ornaments by buying gold from refineries.

QUESTION 7: What is your final take on ending of 2015 and 2016 soon to begin?

Prithviraj Kothari: 2016 will be good for the trade. It may create bullion history and it may be ‘Golden Period’ for all traders.

Facebook: https://www.facebook.com/prithviraj.kothari
Twitter: https://twitter.com/prithvirajrsbl
Blogger: http://riddisiddhibullionsltd.blogspot.in/
RiddiSiddhi Bullions Ltd.(RSBL) http://www.rsbl.co.in/
Youtube: http://www.youtube.com/user/PrithvirajKothari
Google+ URL : http://www.google.com/+PrithvirajKothari

Calmness before the big move in Gold and Silver: RSBL

                                          - Mr. Prithviraj Kothari, MD - RSBL

In order to understand why I have given this title for the week's blog, I would like you to have a look at the price movements in the below charts of Gold and Silver:

Gold price range: RSBL SPOT Terminal

Silver price range: RSBL SPOT Terminal

If you see the above 2 charts of the price movements in Gold and Silver for the week (courtesy: RSBL SPOT terminal), you would agree with me that the price movements are identical. I would even look forward to quote it as same. That's how these 2 metals are coupled with each other.

In the third week of May, both the metals hit their key resistance and fell while last week both of them hit their key support and now have stabilized in their month on month trading range.

With the amount of news flow reducing, physical support dying out, these metals are just trying to stay up float. For the last week I saw more news coming from physical demand of these metals:

1. According to BBG, China's net Gold imports from Hong Kong fell for a third month as buyers deferred purchases in anticipation of further price drops and amid increasing government scrutiny of bullion trading. Net inbound shipments dropped to 46.6 metric tons last month from 61.8 tons in March and 65.4 tons a year earlier, according to data compiled by the Hong Kong Census and Statistics Department.

2. Switzerland exported 143.9 tons of gold in April which is 36% less than March. More startling were the exports to China which were down 67% to just 15.1 tons.

Judging from the physical demand shrinkage of the metals, I feel that these prices are not so inspiring for investors to invest in them.

Economic news from US showed:

• GDP figure contracted in Q1, hurt by Frigid winter and a debilitating West coast port strike. 
• The Chicago PMI tumbled in May to 46.2 (53.0 expected), reversing all the gain recorded in April (52.3 April). 
• Initial unemployment claims in the U.S. edged up from 275k to 282k in the week ended May 23 (270k expected).  Despite the latest increase, the level of claims remains extremely low by historical standards which is positive

When it comes to technical levels: US$ 1180 of Gold and US $16.70 acts as a fortress for these metals. Until the prices do not breach these levels, I feel that the ongoing range specific price movements is a part of a calm sea which could induce violent storms in no time for the next big move.

Things to watch out for in this week are:
1. News about Greece payments to IMF - All week
2. ISM Non-Manufacturing PMI - Monday
3. ADP Non-Farm Employment Change - Wednesday
4. ECB Press Conference - Wednesday
5. Non Farm Payrolls data - Friday

TRADE RANGE:

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1181 - $1238 an ounce	Rs.26,600 - Rs.28,300 per 10g
SILVER	$16.70 - $18.00 an ounce	Rs.38,500 - Rs.42,000 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 - Gold prices Fall after hitting key resistance! - RSBL
http://riddisiddhibullionsltd.blogspot.in/2015/05/gold-prices-fall-after-hitting-key.html

Gold prices Fall after hitting key resistance! - RSBL

                                                               - Mr. Prithviraj Kothari, MD - RSBL

Another buying opportunity or it is a one such half hearted rally? A question that is pushing investors away from the precious metals complex. I would do my best to give you an idea by starting a gist of things that took place over the week.

The above picture depicts the Gold price range for the entire week (Picture taken from RSBL SPOT terminal). The week started off from where it closed, at a doorstep of the key resistance level US$1238. In almost all my previous blogs have emphasized on this particular level, that if broken, we can expect some change in trend. But it didn't. Gold continues to oscillate around USD $1200 with initial support sitting around this level.

Last week did show us, some spectacular movement in Silver where it broke key levels to enter in the range of US$17. Like Gold it did take a beating and US$17 does act as a short term base for the Silver metal. (image taken from RSBL SPOT terminal).


Key levels do make a lot of difference when the metal prices try to change a trend. But what caused this sudden drop:

1. U.S. housing starts jumped to their highest level in nearly 7 and a half years in April and building permits soared, providing hopeful signs for US economy gaining grounds over a dismal first quarter.

2. U.S. CPI data for April showed a +0.1% increase (expected: 0.1%) to mark the third monthly increase. The core CPI too read 0.3% (expected 0.2%), the largest increase since 3-4 years.

3. One of the most prominent news coming out of the week was from Federal Reserve Chair Janet Yellen. While speaking at the Greater Providence Chamber of Commerce on Friday, she addressed, ".... If the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the Federal Funds target rate." A step to increase the rate hike is inversely proportional to gold price rise.


That goes without saying that U.S. data is highly influential for movements in precious metal complex prices as the other data that could have given a better support, weren't that influential:

1.  According to the latest CFTC data, hedge funds and money managers have hiked their net long silver stance to a near 10 month high and boosted their bullish gold bets to its biggest since March (+123k contracts, +77k prior week) for the week up to May 19.

2.  Greece cannot make debt repayments to the International Monetary Fund (IMF) next month unless it achieves a deal with creditors, its interior minister said on Sunday, the most explicit remarks yet from Athens about the likelihood of default if talks fail. European leaders told Greece on Friday to return to the negotiating table for "intensive work" to wrap up a reform agreement before cash runs out, sidestepping Athens' demand for a comprehensive, long-term solution to its troubles.

3. Iraqi forces recaptured territory from advancing Islamic State militants near the recently-fallen city of Ramadion Sunday, while in Syria the government said the Islamists had killed hundreds of people since capturing the town of Palmyra.

4. Russia's gold reserves rose to 40.1 million troy ounces as of May 1 compared with 39.8 million ounces a month earlier, the central bank said on Wednesday.

On the domestic front,  India could allow individuals deposit a minimum of 30 grams of gold with banks in return for interest payments to help monetize large quantities of the metal lying with households, a step that is aimed at cutting expensive imports. India released a draft documents of gold monetization plan on Tuesday.


Looking at the price jump from Silver, it does look a strong price comeback for me. I have always asked my readers to be invested in Silver. A metal that has multiple functionality.

With the FED meeting round the corner at Greek debt payment on June 5th, a lot more lies for the price movements in precious metals. Still the range play continues and strong conviction from Bears and Bulls is lacking.

It was a memorial day in US and spring bank holiday in UK, due to which price movements were muted yesterday.

TRADE RANGE:

METAL	INTERNATIONAL	DOMESTIC
GOLD	$1194 - $1238 an ounce	Rs.26,700 - Rs.28, 500 per 10g
SILVER	$16.70 - $18.00 an ounce	Rs.38,500 - Rs.42,000 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 - RSBL: GOLD CONTINUES TO RISE!
http://riddisiddhibullionsltd.blogspot.in/2015/05/rsbl-gold-continues-to-rise_17.html

FED SETS THE RULES FOR GOLD

by Mr. Prithviraj Kothari, MD, RSBL

Since December 2008 to June 2011, gold rose 70 % as the Fed bought debt and held borrowing costs near zero percent. 

Last year being the worst performing year for gold, as prices slumped 28 per cent as the markets had expected that the central bank would taper its monthly stimulus program which was the main reason for the spark rise in gold in 2011. 

After spending much of the month bouncing off a triple-bottom low around $1,180 made on Oct. 6, and previously in December and June 2013, gold prices turned weaker and spent the last week and a half drifting lower.  

The U.S. Federal Reserve had dismissed financial market volatility, a slowdown in Europe and a weak inflation outlook as factors that might undercut progress towards its unemployment and inflation goals.

The hawkish comments and the strong economic data dulled gold’s appeal as a hedge. This continued to put pressure on gold. 

Post FOMC, gold dropped more than $20. The market recouped some losses edging back up to $1215, but early London were aggressive sellers, pressuring the market another $20 lower to a low of $1196.50.

Moreover, on Wednesday, The Fed ended its monthly bond purchase program and dropped a characterization of U.S. labour market slack as "significant" in a show of confidence in the economy's prospects. As the Federal Reserve ended its asset purchase program amidst signs of a growing and improving US economy, gold lost its appeal as a safe haven asset and demand to won gold declined. 

Gold is 0.6 % lower in October after losing 6.2 % last month, and the metal during the last session erased the year’s advance as Dollar Spot Index rose to a three-week high. Gold traded USD 1160.85 while Silver and Platinum tested respective support levels of 15.80 and 1220. Gold support for the short term is expected at $1150.

Apart from this, there were few other reasons responsible for the crash in gold and silver prices.

Central Bank Interest Rate - The central bank, which has held its key rate at zero to 0.25 percent since 2008, this week cited an improving job market in deciding to end bond buying, while maintaining a commitment to keep rates low for a considerable time. It also said inflation is running below its 2 percent target.

SDPR Gold Trust- Reflecting bearish sentiment, SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings fell 0.16 percent to 741.20 tons on Thursday, the least since Oct. 2008.

US Data- Precious metals cratered, hit by a double-whammy of the rather hawkish Fed policy statement, coupled with a stronger-than-expected US GDP report. Fed officials this week cited an improving job market in deciding to end bond-buying, while maintaining a commitment to keep interest rates low for a considerable time. 

Dollar- Gold and silver were hit hard after the dollar rose to a near four-week high against a basket of major currencies on Friday, Reuters reported. The greenback got a boost from strong US gross domestic product data and the Bank of Japan’s surprise move to expand its massive monetary easing that weakened the yen.

Bond Buying Program- Gold was languishing near a three-week low on Thursday after the U.S. Federal Reserve ended its bond-buying stimulus program and expressed confidence in the economic recovery, dimming bullion's safe-haven appeal.

Lack Of Support From Asian markets- Gold failed to get any support from the Asian physical markets, a factor that could likely push it to further lows. Physical demand usually provides a floor to dropping prices.

China's factory activity unexpectedly fell to a five month low in October as firms fought slowing orders and rising costs in the slow moving economy.

Buyers in top consumer China failed to emerge despite the drop below $1,200. Gold of 99.99 percent purity on the Shanghai Gold Exchange - the main platform for physical trades in the country - sank as much as 3.1 percent to 230.05 Yuan per gram ($1,172.35 an ounce), the lowest level this year, Bloomberg reported. Volumes tumbled to a one-month low on Friday.

    

For the coming week, gold is expected to be influenced by any comments coming in from the ECB and also any important data cropping from the October U.S nonfarm payroll report. Following Thursdays GDP growth reports news, the Federal Reserve is more upbeat on the labour markets and the Federal Open Market Committee meeting to be held on Wednesday expects a strong data report. This may make the bearish sentiments strong for gold.

TRADE RANGE

METAL	INTERNATIONAL Gold/Silver price range	DOMESTIC Gold/Silver price range
GOLD	$1150 - $1200  an ounce	Rs.25,500 - Rs.26,750  per 10gm
SILVER	$15.00 - $17.00  an ounce	Rs.34,000 - Rs.37,500  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 - "Gold Once Again Surrenders In Front Of Gold"

http://riddisiddhibullionsltd.blogspot.in/2014/10/gold-once-again-surrenders-in-front-of.html