2. Bullion Monthly16th September 2016
Outlook
Gold: In the near term, gold prices are expected to be volatile as a result of uncertainty generated by
global monetary policies and estimates that US Federal Reserve will not hike its interest rates in near
future. This factor will lead to rise in safe haven appeal for the commodity.
Rate hike probabilities for September and December meetings have increased after remarks by Fed Chair
Janet Yellen that the case for raising rates had strengthened in recent months. Financial markets are
roughly pricing it to be around 21 percent chance of a rate hike in the current month meeting and a 54.2
percent probability in December, according to the CME Fedwatch tool.
With the labor market reaching to its full employment and the economy's recovery from the 2007-09
recession are showing signs of aging, wherein a slowdown in job growth is quite normal. According to Fed
Chair Janet Yellen, the economy just needs to create below 100,000 jobs a month to keep up with a pace
of population growth.
Moreover, Federal Reserve top officials have defended their view that the U.S. central bank should
probably raise interest rates soon, saying that they still intended to keep the economy running fast
enough to boost employment and inflation.
Slow investment demand, lack of physical demand from China and India, the biggest consumers are
breezes for the rise in gold prices. However, the meeting of the US Federal Reserve scheduled this month
will be a close watch by investors across the globe for further trajectory of gold prices. It will provide
further clues about rate hike in the US.
For the month of September, Gold prices in the international market is expected in range of $1250/oz to
$1355/oz and on the domestic front prices are estimated in the range of Rs.29,800/10 gms to
Rs.31,500/10gms.
Silver: Silver's prices will increase in tandem with gold prices and has taken the gold/silver ratio higher,
which measures the number of silver ounces needed to buy an ounce of gold, to its lowest in more than a
year around 70.
According to Reuter’s poll, the US Federal Reserve will wait until fourth quarter to hike its interest rates
probably in December after presidential elections in the country in November. For the month of
September, Silver prices in the international market is forecasted in range of $17.90/oz to $20.70/oz and
on the domestic front prices are anticipated in the range of Rs.43,500/kg to Rs.48,000/kg.
3. The above chart shows that Non farm employment
figures in the US shrunk to the lowest level of
11,000 in May’16 but managed to recover to
292,000 in Jun’16. However, in the month of Jul’16
and Aug’16 it again fell to 255,000 and 180,000
levels which hinted towards US Federal Reserve
opting to delay its decision on hiking the interest
rates in near future. This factor led to weakness in
the dollar index thereby restricting sharp downside
movement in the gold prices.
Bullion Monthly16th September 2016
Gold prices declined by more than 3 percent in
Spot as well as Comex. On the MCX gold prices
fell by more than 2.5 percent as depreciation in
the Indian Rupee cushioned sharp fall in the
commodity as compared to international
markets.
The major reason for downside in the prices was
due to uncertainty over the rate hike by the US,
outflow of gold holdings from the SPDR gold trust
and strength in the dollar index. Further,
consumer confidence in the US rose to 11-month
high hinting towards hike in interest rates by the
Federal Reserve in near future.
U.S. Mint sales of American eagle gold coins in
August fell 42 percent from a year ago while silver
coin sales dropped to the lowest since late-2013,
as bullion prices came off the highest in more
than two years. The U.S. Mint sold 58,500 ounces
of American eagle gold coins in August, up 52
percent from July but down sharply from the
101,500 ounces sold in August 2015.
ECB 80 billion euro per month asset buying
scheme is set to run out next March and investors
argue that the bank needs to decide by December
whether to continue with its program or start
winding it down. Sub-zero interest rates are
hitting banks, which transmit the ECB's monetary
policy, and ECB buying is fuelling concerns about
price bubbles.
As shown in the above chart, the investment
demand has taken a hit in the recent month with a
plunge in the SPDR gold holdings. Holdings have
declined by 14.86 tonnes to 943.23 tonnes in
August. However, on the year till date, holdings
have increased by 295.52 tonnes or a surge of
around 46 percent. As on 30th Aug 2016, fund
managers were net longs at 2,38,152 contracts
when compared to net longs of 2,67,289 contracts
as on 2nd Aug 2016 indicating decline in speculative
interest in the commodity which in turn exerted
downside pressure on the yellow metal.
Source: Bloomberg Source: Bloomberg
Source: Bloomberg
-3.13%
-3.40%
-2.61%
-4.00%
-3.50%
-3.00%
-2.50%
-2.00%
-1.50%
-1.00%
-0.50%
0.00%
Spot Gold ($/oz) Comex Gold ($/oz) MCX Gold (Rs./10 gms)
Gold Performance in Aug'16 (%)
221
265
84
251
273
228
277
150 149
295
280
271
168
245
208
123
11
292
255
180
0
50
100
150
200
250
300
350
US Non Farm Employment Change ('000)
600
650
700
750
800
850
900
950
1000
SPDR Gold Holdings (Metric Tons)
4. Silver prices declined taking cues from drop in gold
prices along with stronger dollar index. Since the
base metals complex and silver prices move in
tandem, the fall in Nickel and copper prices by
around 8 percent and 7.3 percent respectively kept
pressure on silver prices in last month.
On the other hand, speculative interest in the metal
has fallen. As on 30th Aug 2016, money managers
are net longs in silver at around 74158 contracts
when compared to 26th July 2016 wherein net longs
stood at around 96581 contracts, a fall of around
22423 contracts indicating liquidation in the
counter.
Mint sales of American Eagle silver coins fell to 1.28
million ounces, down 74 percent from August 2015
and the lowest since December 2013, as spot prices
fell 13 percent from the July high at $21.11 per
ounce, a two year peak.
American Eagle silver coin sales have eased since
hitting a record for the third straight year in 2015 at
47 million ounces, when a surprise surge in demand
caused an unprecedented supply squeeze as prices
slumped to six-year lows below $14 an ounce.
Bullion Monthly16th September 2016
Coming to Gold-silver ratio it has increased to
70.03 in mid of Aug’16 from 66.51 in the
beginning of Jul’16.
Gold-silver ratio represents the number of silver
ounces it takes to buy a single ounce of gold. At
present it takes around 70 ounces of Silver to buy
an ounce of Gold.
Spot Silver prices and Comex silver prices both
plunged by more than 8 percent in August 2016
while MCX silver prices have dropped by more
than 7 percent in the same time period.
Silver prices on the domestic front fell less as
compared to international markets due to
depreciation in the Indian Rupee.
Source: Bloomberg
Source: Bloomberg
60
65
70
75
80
85
Gold Silver Ratio
-8.26%
-8.06%
-7.35%
-8.40%
-8.20%
-8.00%
-7.80%
-7.60%
-7.40%
-7.20%
-7.00%
-6.80%
Spot Silver ($/oz) Comex Silver ($/oz) MCX Silver (Rs./kg)
Silver Performance in Aug'16 (%)
5. SEBI Certified – Research Analyst www.choiceindia.com
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Bullion Monthly16th September 2016
www.choicebroking.incustomercare@choiceindia.com
Anish Vyas
Digitally signed by Anish Vyas
DN: cn=Anish Vyas, o=Choice Merchandise
Broking Pvt. Ltd, ou=Sr. Research Associate,
email=anish.vyas@choiceindia.com, c=IN
Date: 2016.09.16 11:11:38 +05'30'
