BULLISH SENTIMENTS FOR GOLD: RSBL

 By Mr. Prithviraj Kothari, MD, RSBL

Recently gold has been struggling to climb up due to the recurrent changes in the expectations of an interest rate hike. There is quite a possibility that market players are paying too much heed to the whole interest rate scenario and in turn missing on the bigger picture.

Nonetheless, Gold continues to work lower alongside the rest of precious metals – a resilient dollar and rising US real rates have prompted traders to unwind their long positioning. Investors have become increasingly edgy ahead of the conclusion of the Fed and the BoJ meetings

The spot gold price inched lower during Asian trading hours on Friday amid Mid-Autumn festival holidays in the region.

Spot gold was last at $1,314.66-1,315.00 per ounce, down $1.17 from Thursday’s close.

The spot gold price had tumbled to a week’s low of $1,307.75 on Thursday on selling pressures following a brief spike to $1,328.10 sparked by weak US retail sales data.

In data released Thursday-

• US retail sales in August undershot at -0.3 percent
• Core retail sales in August undershot at -0.1 percent.
• Industrial production month-over-month in August also disappointed at -0.4 percent
• The US PPI in August was unchanged; a 0.1-percent gain from the previous month has been expected.
• The core PPI – excluding food and energy costs – was in line at 0.1 percent.
• The Empire State manufacturing stood at -2.0 missed the expected -0.9
• The Philly Fed manufacturing index at 12.8 beat the predicted 1.1.
• Capacity utilization rate in August stood at 75.5 percent, a touch below the 75.8 percent
• Weekly unemployment claims for September 1-8 in at 260,000 were just below the forecast 262,000 and, more importantly, the psychological 300,000 mark.
• Lastly, the current account balance in June was in line with consensus at -$120 billion. Business inventories month-over-month was unchanged in July, missing the 0.1 percent forecast.

There was disappointment in the markets when the data was released that showed signs of a softening US economy,.aThe US economy has recently shown signs of softening – data including retail sales, its PPI and industrial production have undershot.

While disappointing numbers have lowered the likelihood of an imminent Fed rate increase - for September was just 12 percent, November was 19.3 percent and December was 46.2 percent. Earlier this week, majority had expected a rate hike in December.

With such soft data coming in from the US, expectations have largely diminished towards the Fed doing anything in September and the market is drifting back towards the view they might do nothing for quite a while.

Some even feel that markets are overeating to a potential rate hike and giving too much attention to it, thus ignoring other crucial factors that have the potential to influence gold prices.

The market is once again divided between the supported of bulls and bears for gold. The ones that are bullish are not worried about gold’s recent downtrend. What is the most important factor for investors is that the gains seen so far are sustainable and that gold has more or less stabilised before it takes that long jump to rally.

They believe Fresh disappointing US data has reinforced our view that the Fed should remain on hold in September, resulting in renewed weakness in the dollar and US real rates and prompting fresh buying in gold.
Moreover, demand for gold from China and India is expected to rise over the months to come which will further boost gold prices higher. The market is  moving towards to a festive season and this period of the year has generally seen demand for gold rising and this rise in demand will make up for the weakness gold has faced over 2016.

Given that gold is heavily influenced by fluctuations in the dollar and US real rates, we are not surprised by the metal continuing to weaken. But the bullish supporters for gold also believe that this weakness is temporary and is currently driven by a stronger dollar and higher US real rates

Our big-picture outlook remains bullish but more profit-taking could easily be triggered if the price action disappoints, as it may be starting to do.

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 STABILISES: RSBL"

 http://riddisiddhibullionsltd.blogspot.in/2016/09/gold-stabilises.html

RSBL: Why Gold is still cheap?

                                                                             By Mr. Prithviraj Kothari, MD, RSBL

Before jumping onto the main topic, I would like to essay out some facts about Gold prices this year. (Assuming Silver prices have more or less followed Gold prices). I am sure; lot of people would be feeling that US$60 is a big decline for Gold prices in the recent weeks and few would even have increased their bearish bets against the precious metal. I must warn them by quoting that even after the recent decline; the precious metal is nearly 16% up from its lows.

Then why there is a decline?

1.  The U.S. central bank surprised markets last week by cutting its rate hike projections more than expected, down from four to two in 2016, citing the potential impact from weaker global growth and financial market turmoil on the U.S. economy. This led to a rally in the U.S. dollar index and in turn bearish for the metal.

2.  There was a brief safe haven status which Gold gained due to the attacks in Brussels.

3.  Throughout the last week various Fed members including Patrick Harker, the Philadelphia Fed president,  have come out in support of raising interest as soon as April – if the economic conditions were to move.

4.  One more reason is the Easter Holidays, where I would see the profit booking in the Gold prices is quite understandable.

Now coming to the main topic: Why Gold is undervalued according to me?

1.       Reducing the number of rate hikes from 4 to 2, clearly states that FED isn’t sure how the world economy would fare in the longer run. Even when US economy has been showing some positive economic numbers, they are unable to take the most obvious step and when the inflation picks up faster than the central bank expects, they would have to increase the rates quickly.

2.       A dovish Federal Reserve, a weaker U.S. dollar and negative real interest rates will all be positive for gold this year. Over the recent years, the most dominant driver for gold prices has been the direction of the US dollar. As we are now expecting a lower dollar over the coming years we expect it to play a crucial role in the movement of gold prices. As for the Fed the analysts say that even if the Fed does raise interest rates later this year -- a scenario they see as unlikely -- they will be perceived as being behind the inflation curve high will once again be a pushing factor for gold prices as investors will likely buy gold because of lower US real yields and as some may see gold as a possible inflation hedge.

3.      There are lot of crucial political events this year:

a.   Current leadership crises in Brazil

b.  US presidential election in November

c.   U.K’s June vote over its membership in European Union.

All of them would leave a lasting effect if they go against the market.

4.      Terror threat across Europe, Syrian conflict and other Geopolitical tensions will always make Gold has the safest investment during the turmoil.

5.       Moody’s Investors Service highlighted China’s surging debt burden in lowering the nation’s credit-rating outlook to negative from stable earlier this month.

6.       We are in a tug of war between slow growth and high valuations on one side and central bank stimulus on the other.

Looking at the renewed turmoil in financial markets by highlighting the Fed’s policy divergence with the ultra-easy stances of the ECB and Bank of Japan, the near future seems bright for gold. 

Thank You!

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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 -
 "Brussels explosion and Gold's Safe haven appeal: RSBL"
http://riddisiddhibullionsltd.blogspot.in/2016/03/brussels-explosion-and-golds-safe-haven.html

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GOLD GLITTERS ALL THE WAY: RSBL

By Mr. Prithviraj Kothari, MD, RSBL 

As I mentioned last week in my blog that gold is regaining its safe haven appeal, this week we saw this sentiment strengthening further.

Gold was like literally all over the world this week as we saw the yellow metal gaining its safe haven appeal in its true sense after a long wait. Sentiment in the gold market remained sturdy after prices hit a one-year high in a figurative move.

This was the third consecutive week that gold witnessed positive gains, with increasing more than 5.3%- the biggest weekly percentage gain since late October 2011.

Analysts have noted that the yellow metal’s push back above $1,200 an ounce generated a lot of focus and positive sentiment among appalling investors looking for a safe-haven.

Many analysts are bullish on gold, expecting sentiment to continue to grow as prices have broken through key technical barriers, culminating in a weekly high at $1,263.90 an ounce.

Spot gold was last at $1,240.50/1,241.20 per ounce, having rallied around 22 percent since the start of the year.

The gold price rallied to a high on Thursday of $1,263.30 per ounce, up five percent and it’s strongest since February 6 last year when it peaked at $1,268.90.

Since this rally came in suddenly, there were many investors that missed on to bank on the gains. The speed of the rally and its strength suggest many would-be investors have been chasing prices, having not been able to take advantage earlier in the rally – they had lost faith in gold as a safe-haven given the four-year bear market.

This volatility was influenced by more than one factor. It was a combined effort of the following-

Dollar- Sentiment towards gold has changed dramatically, and gold has even moved up on some days in the face of a dollar rally. With a change in sentiment, those underweight or waiting on the sidelines started buying gold which furtherer fuelled gold prices.

The precious metal benefitted from a softer dollar, which had failed to attract safe-haven demand despite the global instability – the currency was last trading at a four-month low at $1.1349 against the euro.

A softer dollar is making gold more affordable for holders of other currencies – it has fallen around four percent this month, having already rallied strongly over the past 14 months – the dollar index climbed to 100.50 in December from around 70 in January last year and was last at 95.58.

Fed- As part of a two-day congressional hearing, Federal Reserve Chairwoman Janet Yellen attempted to reassure markets that US growth was steady and the labor market was improving.

Yellen and her fellow colleagues are being criticized for exacerbating the instability after raising rates in December – rates were static around 0 percent since December 2008.

And the US Federal Reserve, having raised rates in December for the first time in nine years, has not ruled out a push into negative territory. The chances of further rises this year have receded significantly, according to market consensus.

Because gold has no yield, it loses some of its luster when interest rates are rising. But negative interest rates negate this disadvantage while highlighting economic weakness against which gold is historically seen as a hedge and preferred as one of the safest modes of investments compared to its counterpart.

China- since the Chinese markets remained closed for the Lunar Celebration, there was nil reaction from that side and hence gold prices shot up one side.

With China absent from the market for its New Year holidays this week, the market now waits to see the reaction of Chinese investors upon their return on Monday, particularly as the US will be absent on this day for Presidents day.

All eyes will be glued to the return of the Chinese markets as investors are eager to see what they actually bring to the surface post this week’s volatile developments.

Equity- The gold price benefited from the meltdown in equity markets, as the yellow metal continued to hold around one-year highs. Weak equity markets have spooked investors and they promptly dumped risky assets and rushed to gold, which is seen as a safe-haven.

Other Economies-

Uncertainty about global growth and a mass sell-off in global equity markets unsettled investors, burnishing gold’s safe-haven qualities, while Japan, Switzerland, Sweden and Denmark have adopted negative interest rates.

European Central Bank (ECB) president Mario Draghi is expected to follow suit at the bank’s March meeting, citing inconsistent growth concerns and non-existent price increases.

Since the decision, Japan lowered deposit rates into negative territory and European Central Bank President Mario Draghi is expected to implement the same policy as soon as March.

Both economic regions are struggling with poor economic growth and non-existent inflation despite billions in easy money and years of near-zero interest rates.

Negative interest rates are generally good for gold as the improbability and agony linked with negative rates tends to surge interest in gold, but the more distinct shift of monetary policy in this direction by central banks is encouraging even greater flows into bullion.

Although it is a shortened week with markets closed Monday for Presidents Day, the U.S. economic calendar will be busy with the release of regional manufacturing reports, housing sector data, and the release of the Consumer Price Index for January.

While analysts are positive on the gold market, they are not ruling out some weakness at the start of the week.

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 Regaining Its Safe Haven Appeal: RSBL"

http://riddisiddhibullionsltd.blogspot.in/2016/02/gold-regaining-its-safe-haven-appeal.html