DENOMINATING DOLLAR

by Mr. Prithviraj Kothari, MD, RSBL

Over the fortnight gold has witnessed a severe decline in prices. The first week kicked off with a plunge in gold prices and the same continued this week too. Historically September month has been the best performing month for gold, however this year it kicked off on a negative role as we saw that gold prices have declined by 3%. On Friday, a low of $1225.90 was set when lower than expected Chinese industrial production for the month of August was released. A strengthening US dollar and the expected change to the FOMC's policy have played an important role in this decline in gold prices. Gold has been destabilized by the lethal combination of a stronger US dollar and a supple equities. Adding to it is the lack of inflation in the major economies. 

Let's have a look at major factors which could continue to play negative on gold:

Euro tumbled to multi year lows last week after ECB slashed interest rate by 0.1% across the board as inflation and growth remained a concern.

The surging US dollar has been acting as a bearish factor for the precious metals. The dollar index was at a 14 month high on Friday and was steadily on track to post its ninth consecutive week of gains. A strong US data and a fall in Euro has strengthened the dollar even further and raised expectations that the US Federal Reserve would soon raise interest rates.

On the geopolitics front, U.S. President Obama said Wednesday evening that the U.S. military will use more air strikes against the ISIS terrorists, but will put no troops on the ground in the Middle East. That news was not unexpected and had little markets impact. The Russia- Ukraine cease fire was holding up and the Ukrainian President on Wednesday quoted that most Russian troops have pulled away from the Russia- Ukraine border. 

With geopolitical concerns seems to be easing out, there seems to be little support for gold.

Moreover, Investment demand in Gold has been showing no improvement.  Weak investor sentiment was reflected in the SPDR Gold trust that saw holdings drop 0.32 tonnes to 788.40 tonnes on Friday. Hedge funds and money managers cut bullish futures and option bets in Gold to their lowest in nearly three months, the Commodity Futures Commission said on Friday.

The demand for gold globally has not picked that well this year. Asian countries aren't witnessing the same patterns of buying when the rate was the same in the previous years. Moreover in the past, such price falls would have attracted bargain hunters. Not now.

The 11-year rally in gold prices created a perception that they will only go up. This price fall has broken that conviction, Now people are diversifying their Investments. This trend will increase in the coming years but expectations of a tightening in super-loose U.S. monetary policy would weigh on gold.

Although, gold prices have been declining since last year, the metal does remain an attractive investment in China. Demand for gold in China will grow steadily as the middle class expands and the Yuan is further internationalized which will require an increase in gold reserves.

Looking ahead, the near term outlook for Gold and silver looks towards downside in international dollar terms. This is the direct impact of improving US economy and looming interest rate rises which will continue to discourage investor buying and in fact lead to selling. I do feel that slowly and steadily the rates will be hiked depending on the economy's growth. This will provide the breather for both the metals.


Traders and investors are already looking ahead to next week, and a more robust batch of economic data points, highlighted by the meeting of the U.S. Federal Reserve’s Open Market Committee (FOMC). Its one of the most important meeting where it would debate on  potential overhaul of its guidance on interest rates and would decide on how QE3 can be exited. Next week is also the much-anticipated referendum on Scotland’s independence from the U.K

TRADE RANGE:

METAL	INTERNATIONAL price	DOMESTIC price
GOLD	$1202 - $1252.70  an ounce	Rs.26,200 - Rs.27,500  per 10 gm
SILVER	$18.20 - $19.70  an ounce	Rs.39,500- Rs.43,500  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 - "A Booster Month For Gold"

http://riddisiddhibullionsltd.blogspot.in/2014/09/a-booster-month-for-gold.html

A BOOSTER MONTH FOR GOLD?

by Mr. Prithviraj Kothari, MD, RSBL

Gold has established a support level at $1275 since March and prices have risen post this level. 

But, during the second half of March gold fell heavily from resistance around $1400 back down to a several week low near support at $1275.

As 2014 began, gold moved very well for the initial months towards a six month high near $1400 and has now plunged to levels closer to $1300.

As news of the escalating tensions in Middle East and Ukraine gained momentum, gold gained 5.4 per cent year due to rise in demand for this safe haven asset.

After hovering at around $1290 gold has plunged sharply over the last week and has broken through the support at $1275. 

It rallied a day ago however ran into further resistance at $1275 before falling lower to a four month low around $1258.  

Though gold has always been the markets favourite metal during uncertainties, but this time bullion investors continue to worry over strong U.S. economic data and its impact on the dollar.

This week we saw gold falling to its lowest level in three months, on Friday before it recovered modestly.

On Tuesday, Gold witnessed its greatest drop this week as the market broke through recent support at the $1,270 area.

Gold was  unable to capitalize on the news of the ECB’s interest rate cut and QE program as the euro weakness offset any support gold would have received from the new liquidity programs.

AS tensions lingered over Ukraine and a weak dollar forced bargain hunting, we saw gold prices rising on Wednesday after prices earlier fell to a two and a half month low.

The yellow metal was under pressure after the Russian President drew plans for a ceasefire but then regained its prices when the Ukraine prime minister later dismissed Russia's proposal.

The metal is under pressure as the euro languished near a 14-month low versus the dollar on Friday, struggling to regain its footing after the European Central Bank delivered a fresh round of stimulus and promised even more if needed.

Gold was standing firm above the $1270 level in Thursday as it was impacted by a weaker Euro and surging equities after the European Central Bank cut interest rates to record lows which was counteracted by lower than expected U.S. jobs data. 

The main refinancing rate was cut to 0.05 per cent from 0,,15 per cent and the ECB lowered the rate on bank overnight deposits to -0.20 percent. 

But what surprised the market was Fridays U.S. jobs data that gave gold a push thus helping it to return to modest levels overnight. 

The U.S. Labor Department said the economy created 142,000 jobs in August, far below expectations for a figure of over 200,000. The unemployment rate fell to 6.1%, a six-year low. The average pace of job creation this year is 215,000, up from 194,000 in 2014. 

Gold rose from an 11-week low, after U.S. employers added the fewest jobs this year, adding some pressure on the Federal Reserve to maintain lower interest rates.

Initially data reports had stated the US economy was back on the path of recovery but Fridays number were a bit disappointing .

A stronger greenback is a setback for dollar denominated gold as it makes the yellow metal more expensive for users of other currencies.

 Gold traders are likely to keep an eye on currency moves next week after the euro fell to a 14-month low versus the dollar Thursday, following the surprising move by the European Central Bank to cut interest rates and embark on a quantitative easing program.

Traders will also extend a warm welcome to the month of September as it has historically been the best performing month for gold giving an average return of 2.16 per cent since 1969.

A spike in retail demand in India is another reason for the typical bump.

We hope this month the be a booster 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 -

"Bull v/s Bear"

http://riddisiddhibullionsltd.blogspot.in/2014/08/bull-vs-bear.html