The year began on a positive note for gold after a terribly weak performance in 2013. By 2014, Mid February gold was once again enjoying the status of the most sought after metal, as we saw the yellow metal moving on the road of recovery.
Now gold is being pulled between bullish and bearish factors. Gold prices peaked in march, but the pull back and consolidation is now lasting a bit too long to be considered healthy. Moreover, ETF redemptions are on the rise and this has given rise to the bearish pull for gold. Gold is now sitting on a see saw and is caught between US recovery on one side and the rising Geo-political tensions on the other.
Russian crisis brings along with it a strong bullish background for gold. But at the same time the global economic development, has shifted investors focus from gold to equities and pushed gold into the bear market. In addition, other markets are doing better and you need look no further than the fact that US equities are setting fresh record highs and corporate confidence seems to be picking up, as there has been a revival in M&A activity. Strong equities are therefore raising the opportunity cost of holding Gold.
Last year gold did disappoint many investors but still it has not been pushed out of the market. It’s a temporary phase and key market players still believe that gold will soon begin to rally.
As such, we think the market could quickly get interested in Gold again if other markets start to correct, especially as Gold prices are much closer to their lows than highs. A relaxation in India’s import restrictions could be a bullish development, as could a pick-up in geopolitical tension. Nearly 70% reduction in Gold imports as compared to last year will surely please the new government with the reduction in CAD woes.
It’s always stated that gold enjoys the status of a safe haven asset during times of uncertainty. Ukraine tensions have been behind much of gold’s 7 percent rise this year. Pro-Moscow separatists in eastern Ukraine ignored a public call by Russian President Vladimir Putin to postpone a referendum on self-rule, declaring they would go ahead on Sunday with a vote that could lead to war. The decision, which contradicted the conciliatory tone set by Putin just a day earlier, caused consternation in the West, which fears the referendum will tear Ukraine apart. While on Saturday, tensions were running at fever pitch in eastern Ukraine on the eve of an independence referendum, as rebels briefly held several Red Cross staff on suspicion of espionage. These rebels voted for self rule. Ukraine’s acting President Oleksander Turchinov sad that those stand for self rule do not understand that it would mean complete destruction of the economy , social programme and life in general for the majority of the population in these regions.
But, many traders fear the gains would dissipate quickly once the situation is resolved. Many gold analysts have said that the precious metal has remained resilient the past few weeks as fundamentals remain negative for the asset, such as the Fed’s commitment to continue to scale back economic stimulus.
Data released on Thursday stated that the number of Americans filing new claims for unemployment benefits fell more than expected last week, indicating the labour market was strengthening despite a run-up in applications in prior weeks.
Overall, Gold posted second straight weekly decline as more strong U.S. data showed that the world’s largest economy was recovering well, supportive of the Federal Reserve’s stance to keep trimming monetary stimulus. Moreover, the European Central Bank stayed committed over leaving its main interest rates unchanged. Physical demand has also been muted despite the drop in prices, with many hoping that a stabilization in prices would bring back buyers.
Last year, Chinese demand for gold surged as many buyers entered the market at dips. That, along with strength in retail demand in Western markets, helped drive a 35 percent surge in physical investment last year to 47.1 million ounces and Jewellery consumption also rose 22 percent to 81.7 million ounces.
The Fed’s ongoing reduction in its bond purchases, easing concerns about fiscal situations on both sides of the Atlantic and low inflation are all headwinds for the yellow metal for the rest of 2014. This brief detention underscored jitters in the two regions of east Ukraine ahead of the disputed referendum likely to result in a new spike of Geo-political tensions.
We cannot then, underestimate gold.
The trade range for Gold and Silver is expected to be as follows:
In the international markets gold and silver are expected to range between $1270 -$1310 and $18.20 – $20.50 respectively. While in the SPOT (delivery based) domestic markets Gold and Silver are expected in the range of INR 28,300 to 29,700 and INR 40,500 – INR 44,000 respectively.