Bullion Update

Friday | October 05, 2012

Content
Gold Performance Silver performance Outlook

Nalini Rao Sr. Research Analyst Nalini.rao@angelbroking.com (022) 2921 2000 Extn. 6135 D. Vijiya Rao - Research Analyst Vijiya.d@angelbroking.com (022) 2921 2000 Extn. 6134 Anish Vyas - Research Associate anish.vyas@angelbroking.com (022) 2921 2000 Extn. 6104

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Bullion Update
Friday | October 05, 2012

Gold draws strength from further stimulus measures and persistent uncertainties In the beginning of the month gold surged on the news of stimulus measures announced by the central bankers particularly by the US Federal Reserve declaration of third round of quantitative easing popularly known as QE 3. During the entire month of September the prices of gold spurred on by the aggressive stimulus measures by the other major central bankers and policy makers such Chinese and Japanese apart from the US Federal Reserve and the European Central Bank. Spot gold prices touched an eleventh month high on October 4, 2012 at $1794.90 per ounce as the uncertainty in the euro zone looms and the US jobs market report which showed decline thus raising questions on the effectiveness of the stimulus measures. The momentum of gold continued for the fourth straight month gaining around 3 percent till now and 7 percent month on month. The precious metal also drew strength from the weakness in the economies of China, Australia apart from the US and Europe. Gold has maintained its appreciation marking the eleventh consecutive year of upward trend. Prices of gold crawled back towards the 11 month high at $1,791.20 in the first week of October supported by the expectations that the central banks might adopt further monetary measures to revive the stalling economic growth.
Gold performance in the international and domestic markets

Source: Reuters, Angel Research

Economic indicators continue to be in the negative terrain Investors are eying on the developments in Spain where the countrys Prime Minister Mariano Rajoy has denied asking for a bailout. Previously, in the month of September, the US Federal Reserve had

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announced to buy mortgage backed securities of $40 billion per month till the employment market in

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Bullion Update
Friday | October 05, 2012

the country improves considerably. The continuation of weak economic indicators from the region lately has raised hopes of further stimulus measures by the other bankers also. The expectations that the US Federal Reserve and the ECB would start its programs at the end of this month and the other bankers may also follow the suit, the precious metal has again gained momentum. The economic statistics across the globe has come on a weaker note which has ignited the hopes that the other central bakers may also adopt stimulus measures to revive the stalled growth. The final GDP of the US grew at a slower pace of 1.3 percent in the second quarter of 2012 as compared to rise of 1.7 percent in the first quarter of 2012. The unemployment claims too declined by 26,000 to 359, 000 for the week ending September 21st, 2012 as against a rise of 385,000 during the previous week. The Chicago Purchasing Managers' Index (PMI) also declined by 3.3 points to 49.7-mark in September as against to earlier level of 53 in August. The US Automatic Data Processing, Inc (ADP) nonfarm employment change declined by 27,000 to 162,000 in September as against a previous rise of 189,000 in August. These figures were keenly watched as the quantitative easing of the US is based on the improvement in the employment sector. In the euro zone also the Manufacturing Purchasing Managers' Index (PMI) rose to 46.1 in September from 45.1 in August and the unemployment rate remained at a record high of 11.4 percent in the month of August with more than 34,000 more people losing their jobs during the month. The week economic indicators from the region suggest that the growth will not return to the euro zone any time soon and would further add pressure on the ECB policy makers. This indicates that the ECB sooner or later might take the measures to revive the regions economy. The ECB met on October 4, 2012 to announce its latest monetary measures and it kept key rates steady at 0.75 percent. However, European Central Bank (ECB) was optimistic over the banks unlimited bond buying plan to provide rescue to the ailing economies of the region. Besides the economic statistics of other euro regions have also declined. Although, the German manufacturing activity shrank at a lesser rate in September rising to 47.4 from August reading of 44.7, the outlook for the manufacturing seems to be gloomy as there is fall in the new orders according to German industry group VDMA. French Consumer Spending decreased by 0.8 percent in August after an increase of 0.4 percent in July. All this indicates for more monetary measures which is a positive factor

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for the precious metal thus making the metal attractive for investment.

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Bullion Update
Friday | October 05, 2012

The central bank of Australia have also cut rates to a three year low of 3.25 percent to support the economic growth affected by the Chinese slowdown, falling exports and high currency. Central bankers also on a buying spree The allure of gold seems to gain strength in such times of uncertainty and the central banks are also expanding their reserves. According to the International Monetary Fund data, Kazakhstan increased its gold reserves by buying 1.4 tonnes in the month of August for the 12th consecutive month. South Korea bought 16 tonnes and Paraguay purchased 7.5 tonnes in July 2012 respectively. According to the World Gold Council estimates, the central banks bought 254.2 tons in the first half of 2012 and are estimated to add in the second half to stand around 500 tonnes at the end the year. Gold reserves held by central banks have increased by more than 500 tonnes in 2011 as large number of banks, mostly in the developing economies have made significant purchases. Domestic markets tracking the global sentiments India, the largest consumer of gold is estimated to hoard about 20,000 tonnes by the individuals and corporate in the form of jewellery, coins and bars and other entities, according to World Gold Council. Hence, to monetize the physical gold holdings, the Government of India is finalizing the scheme in order to put these idle stocks into more productive uses. Under this scheme, the banks can issue fixed tenor long-term gold deposit certificates. Banks in turn can hedge the risk of such liabilities in the futures market and then use them for financing the projects. Interest incomes can be generated by holding such certificates and banks would decide on the interest rates which could be in the range of 1 to 2 percent of the value of gold.
Performance of gold in domestic markets

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Source: Reuters, Angel Research

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Bullion Update
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The domestic market gold prices also tracked the global markets and swayed from the positive and negative terrain. This was on the back of renewed worries over the euro zone sovereign debt crisis where Spain and Greece saw violent protests on the austerity measures and the weak economic indicators and weak oil prices also depressed the market sentiments. MCX gold touched a high of Rs. 32,421 on September 13, 2012 and gained around 5 percent as compared to previous month. The domestic gold prices have witnessed some weakness thereafter due to the strength in the rupee on the back of several measures adopted by the Government of India in pursuit to reduce the fiscal deficit and revive the growth in the economy. The price of the gold may surge further as it is safe heaven against rising prices. Rising oil prices is usually related to rising inflation which tends to add allure to the gold. Holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, surged 2.4 percent and stood at 1320.78 tonnes till September 28th 2012 as against 1289.52 tonnes till August 31st, 2012.

Performance of Gold and Crude oil

Source: Reuters, Angel Research

The gold/silver ratio indicates the number of ounces of silver needed to buy one ounce of gold. This ratio has been declining and the silver continues to outperform gold. This can also be viewed as an indicator to determine if one commodity is over valued or under valued in comparison to each other.

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Bullion Update
Friday | October 05, 2012

Gold Silver Ratio

Source: Reuters, Angel Research

Silver also follows the gold path Spot silver hit a seven-month high on October 1, 2012 at $35.36 an ounce. Spot Silver prices mirrored the gains of the gold prices and ended with sharp gains of around 15 percent month on month. Infusion of stimulus package by the major central bankers around the globe caused positive market sentiments driving market participants to accumulate this white metal too, besides gold. More liquidity into the markets led to rise in the risk appetite amongst the participants thereby causing demand for the low yielding currency that is US Dollar Index to decline. Weakness in the DX also supported an upside in the white metals. Gains in the base metals also helped prices of this industrial metal to gain in the last month. The silver prices were seen on an uptrend on the back of support from the purchases from the industrial sector. The white metal touched a high of $35.15 per ounce and ended $34.46 per ounce in the last month. In the domestic markets MCX silver prices surged 13 percent taking cues from firmness in the spot prices and touched a monthly high of Rs.65, 723 per kg and settled around Rs.62, 626 per kg. Sharp gains in the domestic markets were however capped on the back of sharp appreciation of the Indian rupee. Holdings in the iShares Silver Trust, on a monthly basis witnessed a rise of 2.6 percent to 9925 tonnes till September 28th, 2012 from previous month holdings of 9671.6 tonnes till August 31st, 2012.

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Bullion Update
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Performance of Silver in the international and domestic markets

Source: Reuters, Angel Research

Conclusion The appeal of gold would continue to get support as the US fiscal cliff the deadline comes around at the end of 2012 under which an agreement has to reached where there is a plan to cut the federal budget or trigger $600 billion in spending cuts and higher taxes that were put in place last summer. This would be negative to the already stalling economy which would act as a favorable factor for the metal. The prices may also gain momentum on the back of rising inflationary pressures in the economies and many central bankers such as in Turkey, South Korea and Russia expanding their purchases may witness a boost in the demand for gold. Additionally, Spain would be a focal point which would tend to dominate the global market sentiments thus driving the gold prices. In the Indian market gold is likely to ease on the back of strengthening rupee mainly on account of several measures by the Government of India to allow foreign direct investment (FDI) in the multi-brand retail, aviation, power exchanges and segments of broadcasting. The largest consumer of the gold can see an upturn in the demand as the fourth quarter is the usually a stronger quarter due to the festive season. Hence, the major beneficiary from the various stimulus measures adopted by the central bankers would the precious metals pack which could see an upside in the prices in the short and medium term.

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Technical levels for Bullion

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