As the week ended, Gold once again became the centre of attraction in the commodities market.
Bullion metals rallied on Thursday. Gold was at a three week high on Thursday, sustained by safe haven buying following outbreak of violence in Iraq and disappointing economic news out of the US. Last month it was Ukraine, this month it’s Iraq.
Iraq was once again the topic of discussion as civil war has broken out in that country amid escalating violence. Crude oil prices were sharply higher on Thursday, mostly on the Iraq news. The bigger worry is that the violence in Iraq could spread to other Arab countries. Insurgents linked to al-Qaeda seized northern cities of Mosul and Tikrit on Wednesday. Post this, gold and silver prices shot up due to their safe-haven appeal. The U.S. said that it is working with Iraq’s leaders on a coordinated response to regain lost territory and would provide additional assistance to Baghdad.
Along with this crisis, came in a report from the US that was not as per expectations. US unemployment claims and retail sales came in below expectations, giving investors an excuse to sell equities with sentiment relatively risk averse were also friendly for the gold market.
Claims increased by 4,000 to 317,000. That was roughly in-line with the consensus estimate, which was pegged at 315,000. Total retail sales for May increased 0.3%. Excluding autos, they were up 0.1%. Those results were below the consensus estimates, which called for increases of 0.7% and 0.4%, respectively. Separately, April business inventories rose 0.6%, while the consensus expected an uptick of 0.4%. This followed the prior month’s unrevised increase of 0.4%. In other overnight news, industrial production in the European Union rose 0.8% in April from March and was up 1.4% year-on-year. The increase was a bit larger than forecast.
India’s monsoon season is off to a slow start, and this could have implications for gold should it continue. A lack of rainfall would have a detrimental effect upon the wealth of Indian farmers, which in turn could inhibit the ability to buy gold in one of the world’s key gold consuming nation
In 2013, gold has entered the bear market after a long period of time. This tremendous dip in prices, led to a huge demand for gold in Asia. in April 2013 Asian demand came in, in tremendous force and drained the gold market of all of that tonnage from U.S. sellers of gold taking out a total from the developed world, over the entire year of 2013 around 1,188 tonnes of gold, refining it to 1 Kg bars in Switzerland before shipping it into Asian markets, particularly that of China. The gold price was halted in its fall at $1,280 making a double bottom at that price later in the year.
Now we see more than one reason for gold prices to move even further-
- Demand for gold from China remains robust with an annualized +2100 tonnes (approx.) set to being withdrawn from the Shanghai Gold Exchange in 2014. While this is less than the amount seen on 2013 it is sufficient to buoy the gold price at current levels
- The pricing power of the U.S. gold market that came with the 1,280 tonnes of gold has been used up. With the U.S. accounting for only 7.35% of global gold demand, the U.S. markets would have to rely on the influence of the derivatives market of COMEX.
- Gold is currently trading at $1280 and on the lower side it has a good support at $1210. So gold is more vulnerable to shoot up from here,
- Indian demand could reignite on the easing of gold import restrictions that severely curtailed Indian gold demand since August last year. The new ruling party is expected to review these restrictions in the budget in the next week or so.
- Geo-political tensions will play a key role as they have been doing over the years.
As Gold inches up, so will the Silver do! But Silver from a fundamental perspective of it being used in Industries will give it a boost as the economy shows sign of improvement. Moreover with the depreciation of rupee, Gold is expected to move upto the levels of USD 1300 and in India terms INR 28500 to 29000.
Finally, one of the most awaited Headline: Platinum strike deal reached ‘in principle’. An agreement in principle has been reached between platinum producers and trade union AMCU, the companies said on Thursday. “AMCU will be discussing these in principle undertakings with its members to seek a mandate to accept the offers which, if given, will bring to an end the 21-week-long strike,” the platinum producers’ spokeswoman Charmane Russell said in a statement. Platinum lost 40 USD and traded down to a low of 1436.
USD may be under some downside pressure ahead of the US CPI also due tomorrow. The marquee event of the week has to be the FOMC decision due on Wednesday where the Fed is expected to leave its tapering course intact which will bring down the monthly asset purchase to $35 billion with the end date still likely to be October according to Fed Fisher. Traders will keep a close eye on the updated economic forecast which may be a tad more upbeat than previously which will help to give the USD a prop. Fed Chief Yellen’s conference will also be closely eyed.
I expect gold to be in the range of $1265- $1305 and INR 26,800 – INR 28,500 in the international and domestic markets respectively.
On the other hand silver is expected to move in the range of $18.75- $20.10 and INR 40,100 – INR 45,000 in the international and domestic markets respectively.