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Tuesday 29 March 2016

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


Photo courtesy: Google search

Tuesday 22 March 2016

Brussels explosion and Gold's Safe haven appeal: RSBL

                                                              By Mr. Prithviraj Kothari, MD, RSBL



As I was about to publish this blog, Brussels was rocked by multiple explosions that left many dead and wounded. My heartfelt condolences to their families in these challenging times of despair! 


Gold is known for its safe haven appeal and the same has been proven once again. A quick rise of nearly US$20 proved that traders and investors would flock behind Gold to protect themselves from unknown strikes and calamities. 

Hourly price rise of Gold_220316 - RSBL SPOT terminal
Moreover since the Global downturn, the precious metal has risen by nearly 13-month high.

I did mention in my last blog that I do expect some corrections before the next up move and we all witnessed the same before the FED meeting. The FED meeting on Wednesday did conclude that the global risks pose a threat to the US economic recovery.


The U.S. central bank held interest rates steady on Wednesday and indicated it would tighten policy this year, but fresh projections offered by the Fed showed policymakers expect two quarter-point increases by year-end, half the number forecast in December. Expectations that the Fed would raise rates steadily this year had faded since the bank's initial hike in December, as concerns about global growth roiled financial markets.


It decided to scale back the number of planned rate rises this year to two from four, which initially spurred the precious metal to a one-week high while bond yields and the dollar fell and equities made up some lost ground.


Spot gold was down 0.31 percent at $1,253.99 an ounce during Fridays trading hours though the yellow metal closed on a positive side and was up around 0.4 percent on the week. Gold edged down on Friday, as the dollar steadied above a five-month low, but the metal remained on track for a weekly gain after the Federal Reserve scaled down rate hike expectations.


Inflation is a very important economic number that the FED is watching closely. Until it is below their target of 2%, there won’t be much room for FED with the rate hike policy. Unemployment, according to FED is back on track. 


Commitment of Traders report that was realized on Friday, showed Gold and Silver ETFs have seen continued interest and strong buying has been the trend. Gold holdings increased by 915’000 ounces in just two days, while Silver added 3 Mio. ounces as per the report.


With the Easter holiday around the corner, buying interest would mute from here on until further developments on the Brussels’ incidence. 


A support of $1230 and a resistance of $1270 do play strong price levels for Gold’s next move while Silver price levels would be supported by $15.20 and a key resistance of $16.70.


Thank You!

You may follow me on:

Facebook: https://www.facebook.com/prithviraj.kothari
Twitter: https://twitter.com/prithvirajrsbl
Website: http://www.rsbl.co.in/
YouTube: https://www.youtube.com/user/PrithvirajKothari
Google+ URL: http://www.google.com/+PrithvirajKothari


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 -
"Renewed confidence in Gold and Silver: RSBL"
http://riddisiddhibullionsltd.blogspot.in/2016/03/renewed-confidence-in-gold-and-silver.html

Photo courtesy: Google search

Monday 14 March 2016

Renewed confidence in Gold and Silver: RSBL


                                                               By Mr. Prithviraj Kothari, MD, RSBL


 
Gold prices rallied this week but gave up all gains established post ECB. Still the closing was in a positive trend.

The precious metals remain upbeat with average gains of 0.4 percent with gold prices last at $1,275.10, having set a fresh high at 1,282.90, the highest since February last year.

Gold Price rise

The Yellow metal hit a 13-month high in the wake of the European Central Bank (ECB) decision to lower deposit rates and sink another 80 billion euros per month into the economic region. President Mario Draghi said the new efforts will run until March 2017, but stated that he did not anticipate any further rate cuts.

In data, US weekly unemployment claims between February 27 and March 5 came in at 259,000, under the forecast of 272,000 and below the psychological 300,000 mark. This strong US employment report had driven optimism that the US economy and also the world economy may not be that weak as feared following which expectations on the demand viewpoint have been adjusted aloft.

The focus now shifts to Tuesday’s Federal Open Market Committee (FOMC) meeting 15- 16 March for fresh stance on the interest rates in the US, which is world’s largest economy. The meeting will be followed by a summary of economic projections from individual Fed members, as well as a press conference by Chair Janet Yellen. The policy-board has faced severe instability, but recent employment figures show the American economy is still recovering at a healthy pace.

On the domestic front, gold prices are expected to rise further followed by a weakening dollar. The other precious metals also seem to be facing resistance at these levels, although they also do seem to be attracting more investor interest now, which suggests dips will be supported. 

Key economic data watch out for in the coming week:
·         Tuesday - Retail sales, producer prices and the New York Fed Empire State manufacturing survey
·         Wednesday - consumer price index, housing starts and industrial production
·         Thursday - Jobless claims and the Philadelphia Fed manufacturing survey
There are several central banks meeting this week i.e. Bank of Japan, Bank of England and Swiss National bank whose rate related decisions could bring up some volatility in the markets.

Simultaneously, traders will be keeping an eye on is the conclusion of National People’s Congress in China and will be watching for any statements about fiscal stimulus or monetary easing.

My Sentiment for gold prices is positive and if it crosses $1280 an ounce then gold is expected to reach the next technical resistance levels of $1310 an ounce. As it failed to cross $1280 convincingly, I do feel that there could be a short term pull back in prices but Gold’s price of $1300 won’t be a surprise. Silver too has shown a good support around $15.50. In rupee terms, I feel Gold prices would be in the range of INR 28,000 to INR 31,000 while Silver would be in the range of INR 36,000 to INR 41,500.

Silver Price rise



Thank You!


You may follow me on:

Facebook: https://www.facebook.com/prithviraj.kothari
Twitter: https://twitter.com/prithvirajrsbl
Website: http://www.rsbl.co.in/
YouTube: https://www.youtube.com/user/PrithvirajKothari
Google+ URL: http://www.google.com/+PrithvirajKothari



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 -
"Post-Budget 2016: Views of RSBL - Mr. Prithviraj Kothari"
http://riddisiddhibullionsltd.blogspot.in/2016/03/post-budget-2016-views-of-rsbl-mr.html

Photo courtesy: Google search