Bullion Diwali Update

Bullion Diwali Update
Monday | November 12, 2012
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www.angelcommodities.com

Content Introduction Demand and Supply Performance & Outlook
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Gold to gain on the uncertainties in the economies The global economy seems to be recovering with a slower pace. The accommodative monetary steps taken by the central bankers during 2012 have pushed the economic growth additionally with central banks maintaining exceptionally low rates. These policy measures are considered as a step further to boost growth and reduce uncertainties in the advanced nations. The announcement of measures by the European leaders in June and September has driven hopes among the market participants that these measures are closer to the formation of the banking union and resolution of the sovereign debt crisis. The downside risks still continue to loom large as the nations with the debt problems such as Greece, Italy and Spain are not seeking for a bailout. The US Federal Reserve also implemented monetary easing in the month of September 2012. But, the issue of fiscal cliff and raising the debt ceiling still remains a concern. Thus, slower growth and uncertainty in the advanced economies are affecting the emerging countries through decline in the trades and thereby adding to the domestic weakness. The IMF in its World Economic Outlook has revised its growth forecasts for 2013 for the advanced economies from 2.0 percent down to 1.5 percent and from 6.0 percent down to 5.6 percent for the emerging economies. Chinese economic growth slowed owing to credit tightening and weaker external demand. The economy of China is projected to grow 7.8 percent and 8.2 percent in 2012 and 2013 respectively. Indias manufacturing activity also suffered amid slow approvals for new projects, lack of timely structural reforms, policy rate hikes to rein in the rising inflation and slowing external demand. The countrys economy is expected to grow 4.9 percent and 6.0 percent in 2012 and 2013 respectively.
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Gold performance in comparison to other asset classes (year till date)
As the economies world over lurched from one crisis to another with global equities, debt and currencies demonstrating volatility the gold price inched to all-time high just above $1,920 per ounce in September 2011. Gold has demonstrated a strong performance among the various asset classes, with a compound annual growth rate (CAGR) of 16.49 percent from 2000 to 2011 and a notable 17.49 percent from 2010 through 2012. Performance of Spot Gold and Silver over the years Spot Gold Spot Silver
Source: Reuters, Angel Research
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Demand and Supply
According to World Gold Council (WGC), gold demand globally during the second quarter of 2012 stood at 990 tonnes down by 7 percent as compared to corresponding period last year. The jewellery sector witnessed a decline of 15 percent at 418.3 tonnes as against second quarter 2011. This was majorly on account of prevailing high gold prices. Second quarter technology demand stood at 112.2 tonnes down by 5 percent. Demand from the investment sector showed a decline of 23 percent as against second quarter 2011 at 302 tonnes, largely on account of decline in demand for the ETFs and physical bars from China and India. The official sector purchases, however witnessed a rise at 157.2 tonnes in second quarter with purchases concentrated mostly by the central banks of emerging nations. Indian gold jewellery demand declined by 30 percent to 124.8 tonnes in the second quarter 2012 amidst depreciation of Indian rupee resulting in the rise of the local prices of gold. A number of factors contributed to this decline such as slowing economic growth, surging local gold prices caused by the currency fluctuations, high interest rates and high inflation. The gold investment also saw a drop of 51 percent at 56.5 tonnes as the investors were encouraged to book profits resulting from the rising gold prices due to depreciation in rupee. Gold Demand Gold Supply
Source: World Gold Council
China also witnessed a decline in the demand for the gold jewellery dropping by 9 percent at 93.8 tonnes in the second quarter 2012, mainly on account of slowing GDP growth and lack of clear trend in Page

the gold prices. The investment demand slipped to 4 percent as Chinese investors prefer to buy in the rising gold market and do not but when the price trends are not clear. Chinese Consumer Gold demand
According to the latest report by Thomson Reuters GFMS the Chinese gold demand is expected to grow by 1 percent in 2012 to around 860 tonnes. Through this increase, the county is expected to overtake India, the largest consumer of the precious metal. The Chinese jewellery demand is estimated to 520 tonnes from 515 tonnes in 2011. The investment demand is from the country is seen at around 270 tonnes from 265 tonnes in 2011. World supply of the precious metal in second quarter 2012 contracted 6 percent at 1,059.1 tonnes as compared to second quarter 2011. Decline in the recycling activity and subdued mine production were the main reasons for this contraction. The net buying trend which started in Q2 2009 continued its upward trend, on the back of emerging market central banks continued to add gold on increasing concerns about the creditworthiness and low yields of their existing reserve assets. Both the euro area sovereign crisis and the sovereign debt downgrade in the US during the summer of 2011 have only compounded these worries. The net purchases by central banks and official institutions amounted 157.5 tonnes in second quarter 2012 as
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compared to 66.2 tonnes in second quarter 2011.

Performance Gold prices remained volatile in the entire 2011 with prices see sawing from negative to positive territory. It held its status as a safe haven in times of uncertainty and marked an all time high of $1,920 per ounce in the early part of September 2011. Global markets were worried of escalating debt concerns of the Euro zone along with sluggishness in the US. Spot gold prices thus gained 9 percent in the last year. Other reason which supported an upside in the gold prices was stimulus measures by the US Federal reserve till first half of the year. Prices however slipped back at the end of the year due to strength in the US Dollar Index as more Euro nations felt the heat of the sovereign debt crisis. However, a rebound in the prices were seen in the beginning of 2012 with prices erasing the losses of the December 2012 due to announcement of affirmative steps taken by the European leaders to curtail the sovereign debt crisis. European Central Bank provided loans of around 489.2 billion Euross ($640 billion) in the last week of December 2011. This raised the liquidity and also relieved some of Euro zone debt concerns thereby supporting market sentiments and weakening US Dollar Index. A weak dollar index resulted in upward pressure on the dollar denominated commodities. It is here, the gold started to track the other riskier assets such as equities. Despite, European leaders positive steps taken in the month of February 2012, they were unable to fix the problem and it exacerbated to the extent that it was becoming prominent that Greece was nearing to an exit from the Euro group. These resulted spot Gold prices during February through June 2012 to plummet 10 percent. However, European Central Bank (ECB) President, Mario Draghi said that the bank would take every step to the save the European Union in the month of June. This along with approvals by the other leaders in the group caused positive market sentiments and strengthened Euro and pressurized US Dollar Index resulting in an upward movement in the commodities. Additionally, stimulus measures around the globe by major central bankers such as the much awaited Quantitative Easing 3 (QE3) was announced by the US Federal Reserve to tackle the persistent unemployment in the nation and slowing down of their economy. This increased the liquidity and saw money flowing to this asset class and thus pushing the gold prices upwards. Prices of spot gold erased the entire losses of the previous months after the monetary easing and steps by the ECB. Prices touched a high of $ 1794.9 per ounce till date and are currently trading around $ 1734.60 per ounce.
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In the domestic market, MCX gold prices gained a whopping 32 percent tracing firmness in the spot gold prices for the entire 2011 along with depreciation in the Indian rupee. Rupee for the entire year

depreciated 15 percent from 44.60 in the month of January 2011 to 53 levels in the month of December. Sluggishness in the global markets, debt concerns in the Euro zone and strength in the DX caused rapid outflows of the foreign capital. This resulted in sharp depreciation in the Indian rupee. Depreciation in the Indian rupee led prices of the domestic gold to touch an all time high of Rs. 29,433 per quintal in the first week of December 2011. This caused domestic gold prices to perform much better than the spot gold prices in 2011. The year 2012 started on a positive note on the back of strength in the equity markets taking global cues. However, with rising imports of gold in 2011 prompted government of India (GOI) to raise the import duty on gold two times in till date resulting in curbing the demand for the yellow metal. With depreciation in the rupee the landed cost of the gold rose which led to increase in the Current Account Deficit (CAD) of the nation. Gold is the second largest imported item after crude oil which burdens the deficit of the nation. Import duty of gold was increased to 4 percent from 2 percent. With widespread reforms announced by the government such as opening up of FDI in the retail sector, reduction in subsidies in diesel and gas led to sharp depreciation in the Indian rupee causing gold prices to touch new historical highs of Rs. 32,425 per 10 gms in the month of October. Prices are currently trading around Rs.31,740 per 10 gms.
MCX Gold Prices
MCX Silver Prices
Source: Reuters
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Seasonality of Gold The demand of gold broadly comprises of industrial, investment and consumption demand. The later two components consist of recurring annual events there by bringing in seasonality pattern into gold prices. When we consider the returns of gold for each month from 1980 to 2012, we find that the months of September and November are the only two months with significant gold price changes. This is due to several risk factors such as stock market conditions, general commodity prices, volatility in the US dollar and stock markets. This is also a result of increased buying of gold jewellery in the wedding season in India and the pre Christmas period in America and Europe. It is evident that on most of the occasions for the months of September and November, there have been significant and positive gold returns during these months. An alternative explanation for higher gold returns as compared to previous months can be an increase in investment gold demand as a hedge due to past financial crises which occurred in the month of October. Some of the financial turmoil which occurred during the month of October such as the stock market crash in October 1987, the Asian financial crises in October 1997 and the recent global financial crises in October 2008 has encouraged increased gold purchases prior to this month. In the view of prevailing uncertainty over the macroeconomic and microeconomic concerns that lay ahead, it is expected the gold market to remain volatile and would continue to broaden its appeal as wealth preserver and growth of wealth.
ETF- a new form of gold Gold ETF, commonly referred to as paper gold, remained on a flat note as demand was weighed by selling. ETFs witnessed inflows reaching 53.2 tonnes in Q2 2012, compared to 104.4 tonnes in Q4 2011. The concept of ETF was involved in 1993 with the introduction of the SPDR ETF which contained a portfolio of stocks designed to replicate the performance of S&P 500 Index. The gold ETF market in India is considered to be the largest market in Asia. In 2007, the market in India was just 5 tonnes which has now grown to 15 tonnes in 2011. Asset Under Management soared from Rs
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3,581 crore in January 2011 to 4,800 crore in April 2011. In January 2012, it stood at Rs 9,614 crore and soared to Rs 10,218 crore in April 2012. In October 2012 the total assets under management reached to

Rs. 11,477 crore. Although the tonnage of gold ETFs in India is relatively small as compared to other markets but the investments in ETFs have grown significantly over the past few years. Consumer Gold demand in India
Outlook Globally, the gold prices are expected to move in the upward direction. This is on the account of uncertainty in the major advanced economies with the US facing the fiscal cliff reaching the end of 2012 after the re-election of the US President Barack Obama, under which leaders have to agree on a plan to implement $600 billion tax increases and spending cuts thus impacting the growth of nation with already stalled economy. Additionally, unresolved issues of Euro zone sovereign debt particularly Greece and Spain is expected to weigh on the prices. Gold prices in the recent times have moved in tandem with other risky assets. Monetary easing by the central banks, supportive efforts by the European leaders to contain the debt crisis accompanies would result into a weaker Dollar Index thus leading to rise in the gold prices. Silver prices are also expected to move in tandem with gold prices and would also track the base metals
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pack as the metal is also an industrial metal. The accommodative policies adopted by the emerging nations to boost the growth are expected to increase demand of the industrial metal.

In the domestic market both gold and silver prices may see an upside in the wake of demand driven by the festive season. Depreciation in the rupee is likely to support an upside in the gold prices on MCX. Technical Update on Gold
On the Above Gold Weekly price chart, we have seen that from the start of 2012 till date Gold has been consistently trading within a channel taking support at lower boundary of the channel and bouncing back to break previous high and Gold is following this behaviour consistently. In year 2012 Gold prices made a all time high of 32,421 on 13th Sept 2012 and then continued correcting till 30366 on 2nd Nov 2012. Now, on this Diwali we notice that gold prices are trading at lower boundary of the channel and inching higher. At the same time gold prices broke the last 8 week down trend line (drawn from 13th Sept 2012 to 2nd Nov 2012). Technical speaking, Gold price has formed a Bullish Engulfing candlestick pattern which indicates as bullishness in near term. Gold is trading consistently trading above 18 Days, 50 Days and 100 Days EMA (Exponential Moving Average) which showing the indicating optimism.
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On the oscillator front 14 Day RSI is showing a positive divergence and trending higher. MACD is also moving from negative territory towards zero. A close above zero will further support the trend.

Based on above parameters, we are expecting Gold price to trade high toward upper boundary of channel or at least at the previous high. Gold price are having support at 30300 and then 29500 levels. On upside will face resistance at 32,500 levels to 33,000 levels. Trade and close above 33,000 levels will trigger a new rally towards 34,500 to 35,000 levels. Recommendation (Till Dec End of 2012) Buy Gold between 31000 31500, SL 30000, Target - 33,000 (CMP: 31898)
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Technical Update on Silver
On the above Silver weekly price chart we can see that Silver price after making a high of 65723 levels on 13th Sept 2012 (which was also the highest level of year 2012) went in corrective mode for almost 8 weeks making a low of 57400 on 3rd Nov 2012. This low of 57400 levels took support on the up trend line. We noticed that silver prices also took support at 61.8% Fibonacci retracement which was drawn from the low of June 2012 to high of Sept 2012. Technical speaking, Silver price has formed a Bullish Engulfing candlestick pattern which indicates as bullishness in near term. On the oscillator front 14 Day RSI is showing a positive divergence and trending higher. MACD is also in positive territory supporting the trend.
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Based on above parameters, we are expecting Silver price to trade high toward the resistance line drawn above which is near to 63000 to 63500 levels.

Silver prices are having initial support at 60,000 and 58,800 levels and major support at 57,400 levels. On upside will face resistance at 63,000 to 63,500 levels. A positive weekly close above 63,500 levels will trigger a new rally towards 65,000 and 65,500 levels. Recommendation (Till Dec End of 2012) Buy Silver between 60,000 60,500, SL 58,800, Target - 63,000 (CMP: 61459)
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Bullion Diwali Update - 12th November 2012

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Bullion Diwali Update - 12th November 2012

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Monday | November 12, 2012