More pain on cards for gold investors

The domestic market investors have to wake up to the reality of the tapering at least now. Gold prices in India have remained artificially high as rupee lost strength against the dollar.

December 7, 2013:  

Gold prices are taking a hit, thanks to increasing expectation of an imminent tapering. At $1,229.10, the metal was down 2 per cent last week. Silver too dropped and closed at $19.50/ounce.

The surprise from a higher than estimated growth in the US GDP (3.6 per cent versus 2.8 per cent) in the September quarter and the upbeat jobs data hit precious metals. The unemployment rate in fact hit a five-year low at 7 per cent in November.

1st annual drop in 13 years

Gold now stands 27 per cent lower for the year, the first annual drop in the last 13 years.

Investors are rushing to offload their gold investments. SPDR Gold Trust, the world’s largest gold backed exchange traded fund reported its holdings at 835.7 tonnes on Friday, down by 7.5 tonnes for the week. Till date in 2013 investors of this fund have sold 515 tonnes of gold, bringing down the fund’s holding 38 per cent.

In the domestic market too, gold drifted sharply lower. The MCX gold futures contract closed the week at Rs 28,954/10 gram, down 4 per cent. MCX silver ended at Rs 44,052/100 gram, down 0.5 per cent. The loss in these contracts followed gains in the rupee. The currency crawled from 62.8 against the dollar to 61.4 in the last two weeks.

The next two weeks are packed with data releases. From the jobless claims data on Thursday — December 12 — to the crucial Federal Open Market Committee meeting during December 17-18 and the September quarter final GDP numbers on December 20, traders will have to keep a watch on the whole lot of them. It is expected that the US Fed may announce moves to start tapering of its stimulus programme in the coming meet.

The end of the easy money policy in the US would bring more pain to gold as investors move over to bonds and equity. Do not initiate fresh long positions in gold. Existing investors can book profits in the counter and trade with strict stop-loss.

Domestic investors have to wake up to the reality of the tapering at least now. Gold prices in India have remained artificially high as the rupee lost strength against the dollar. But, this may not continue. The sharp decline in CAD and dropping gold imports are positive for the rupee and risks of the rupee inching higher can’t be ruled out.

In the run up to the elections, the expectations of a new reform-centric government at the Centre can help the rupee. From August end, the Indian currency is already up 10 per cent against the greenback.

Levels for traders

Gold is moving towards its June low of $1,180.57/ounce. Once the $1,200-mark is cut, the fall will be swift. Break of June lows can take the metal down to $1,155. On upside, the first resistance is at $1,296.

MCX gold has remained very volatile in the last two weeks giving opportunity for both long and short trades. It first rose to hit the resistance at around Rs 30,900/10 gram levels as indicated and later drifted to close the week near its support at Rs 29,400.

In the next fortnight, the contract may get even more volatile. If rupee remains flat or inches up, MCX gold futures contract (Rs 28,954/10 gram) could slide to Rs 28,741 and Rs 28,321 tracking international prices. If these levels are cut, it can also test Rs 27,248. However, if rupee is weak, it will arrest the fall in the price of the contract and the contract may even strengthen to Rs 29,565 and Rs 30,300.

MCX silver (Rs 44,052/100 gram) continues on a bearish trend and may fall further to Rs 42,121 and Rs 40,765 in the coming weeks. On the upside, resistance is at Rs 45,390 and Rs 47,226.

Technicals: Copper, Natural Gas, Nickel, Zinc, Lead

Copper (Rs 446.3)

MCX copper last week could not gain momentum to breach Rs 450 after its initial rise. The outlook is bearish. Immediate resistance is at Rs 453 and Rs 462. Short-term traders can sell near Rs 450 and accumulate if the contract extends its rise further to Rs 460. Stop-loss can be kept at Rs 465. Immediate support is at Rs 440. Decline below Rs 440 can take the contract lower to Rs 430 where the short-term traders can book profit. The medium-term outlook is also bearish and investors with a medium-term view can hold the short position for a fall to Rs 410.

Natural gas (Rs 253.4)

The MCX natural gas futures contract extended its rally further by 2.7 per cent last week. Although the contract has given up some of its gains, the outlook remains bullish. Immediate support is at Rs 248 and followed by a strong support at Rs 240. Hold on to the long position and accumulate more longs if the contract dips to Rs 248 and Rs 240. Retain the stop-loss at Rs 225 for a target of Rs 270. The contract is moving in a bull channel. The channel resistance at Rs 272 can halt the rally in the contract and can turn the price lower in the medium-term.

Nickel (Rs 844.7)

The MCX nickel contract failed to breach its 200-day moving average (currently at Rs 857) resistance last week. The contract has come off from the high of Rs 862.60 to close on a weaker note last week. The short-term outlook is bearish with significant resistances at Rs 857 and Rs 862. Traders can go short now and accumulate on rallies to Rs 855-860. Stop-loss can be kept at Rs 868 for a target of Rs 810. The medium-term trend is also down as long as the contract trades below Rs 900. Key support is at Rs 800, decline below which can drag the price lower to Rs 730 over the medium-term.

Zinc (Rs 115.75)

The 21-week moving average, currently at Rs 117.7 has restricted the MCX zinc contract from moving up for the second consecutive week. An intra-week bounce to Rs 117 in the coming week will be a good opportunity for taking short positions with a stop-loss at Rs 118.2. Though there is a support near Rs 114, the contract may fall to Rs 112 in the coming weeks where profits can be booked. The short-term view will remain bearish as long as the contract trades below Rs 121 for a fall to Rs 108. However, the medium-term trend is up with a strong support at Rs 105. Some fresh buying here can reverse the short-term downtrend.

Lead (Rs 127.4)

The MCX lead futures contract is coming down over the last four weeks. The outlook is bearish with resistances at Rs 129 and Rs 132. Rally to these resistances if seen in the coming week will be a good opportunity to enter short position with a stop-loss at Rs 133. Although the 200-day moving average support is near Rs 125, the contract looks weak for a fall to Rs 118 in the short-term. However, the medium-term outlook is bullish with a strong trend support near Rs 115.

The Best And Worst Performing Assets From November.

Global monetary policy continued to drive financial markets in November as Japanese stocks rallied almost 10 percent on the month as the country continued to try to inflate its way out of stagnant growth, while gold and silver led decliners as Western quantitative easing showed no signs of ending.

Commodity markets to see subdued activity.

As the world moves towards the end of 2013, some of the uncertainties facing the global economy have turned less-pronounced. Global growth signals are picking up momentum and fiscal headwinds are moderating with many analysts looking for stronger growth in the US and Europe during 2014. Geopolitical tensions have somewhat eased with the announcement of an interim deal with Iran.

On monetary policy, especially the US Fed tapering, it is clearer than before that reduction in asset purchase would begin at the earliest. This week’s key data focus will be on the US labour report. But even before the turn of events, in recent months, commodities as an asset class have not been the most favourite. Investor appetite has been weak. Return on investment has been far from attractive.

With winter and holidays looming, in the next couple of months commodity markets will witness subdued activity. Improving equity market sentiment and firming dollar will pressure commodities down in general and gold in particular.

Last week in London, metal prices were generally weak. Precious metals were mixed with platinum losing 1.4 per cent over the week while gold and palladium edged up by 0.5 per cent and 0.4 per cent respectively. Silver stayed unchanged. Among base metals, LME cash aluminium came under pressure and shed 1.6 per cent in value over the week, followed by lead (-1.5 per cent). Others edged lower. Oil WTI was down 1.4 per cent after the agreement with Iran.

DULL GOLD

With the dollar firming against the euro and equity markets retaining their strength, gold prices have been under pressure. The metal failed to find support from the October FOMC minutes and dipped below $1,250 an ounce.

Indeed, in November, prices fell by over 5 per cent and year-on-year fell more than 25 per cent. Investor appetite is weak and physical demand looks enervated despite recent price falls and seasonal factors. ETP outflows have been heavy and are currently the holdings are below 2,000 tonnes, a new low since 2010.

On the other hand, silver has become even more vulnerable when seen year on year. Its Friday London close of a tad below $20/oz reflects a 40 per cent decline from $34 in November 2012.

On Friday, in London, all precious metals moved up erasing some of the losses of previous trading sessions. Gold PM fix was $1,253, higher than the previous day’s $1,246. Silver AM fix was $19.93 versus the previous day’s $19.76. Platinum ended at $1,376 ($1,357) and palladium $724 ($717).

A delay in tapering has only provided a temporary respite for the yellow metal. Bearish fundamentals, unhelpful currency , weak physical demand and lack of investor appetite have combined. Should prices breach $1,200 mark (which looks absolutely possible), the weakness is likely to be exacerbated given that additional holding in the physically-backed ETPs will become loss-making and outflows will accelerate.

Is there a silver lining to the otherwise poor sentiment in the gold market? Yes, there is. China is buying huge quantities of gold from Hong Kong. China’s imports have accelerated in the last ten years. Although currently month on month imports figures look erratic, the pattern is unmistakable. Based on customs data, it is estimated that January-October imports were nearly 950 tonnes, raising the prospects of annual imports breaching the 1,000-tonne mark. With the recent price fall in dollar terms, China’s imports have become heavier.

METALS MIXED

On Friday, LME cash copper closed at $7,054/tonne, aluminium at $1,710 and lead $2,055. One of the big surprises of this year has been copper.

According to International Copper Study Group, there has been a 6 per cent rise in refined production. However, analysts point out that visible inventories are declining. As regards aluminium the market could get into deficit in 2014 after several years of structural oversupply. Decline in nickel and aluminium prices over the past week looks overdone, according to experts who point out to the potentially significant supply risks from Indonesia.

CRUDE MAY SLIP

While the interim agreement with Iran on its nuclear program holds out the promise of a solution to one of the key issues affecting not only crude oil supply but also the broader instability in West Asia, the road ahead is likely to be long and arduous.

Weekly Economic Data for the week 30-Nov-13 to 06-Dec-13.

Exp.:	Expected or Anticipated value calculated from the recent survey conducted.
Prior:	Represents the last actual for each indicator. In case there is a revision to the last actual, the prior column reflects the prior figure as revised.
Exp. change today:	Exp. - Prior
Avg. change of last 1 year:	Average Change in Actual data calculated for last 1 year.
Expected impact on price:	This indicator shows the effect of the anticipation of data on the prices of related country’s major indices. We have categorized it as below: Very Good Good Neutral Bad Very Bad
Actual:	Refers to the actual/latest figures after its release.

Data for the week 30-Nov-13 to 06-Dec-13

Date	Time (IST)	Country	Data	Exp.	Prior	Exp. chg today	Avg. chg of last 1 year	Exp. Impact on Price
01-Dec-2013	06-30 AM	China	NBS Manufacturing PMI	51.1	51.4	-0.30	0.77	Neutral
02-Dec-2013	07-15 AM	China	HSBC Manufacturing PMI	50.5	50.9	-0.40	0.89	Neutral
02-Dec-2013	10-15 AM	Japan	Bank of Japan Governor Kuroda Speaks in Nagoya
02-Dec-2013	02-28 PM	European Monetary Union	Markit Manufacturing PMI	51.5	51.5	0.00	0.97	Neutral
02-Dec-2013	03-00 PM	United Kingdom	Bank of England Releases Funding for Lending Data
02-Dec-2013	07-00 PM	United States	Fed's Bernanke Greets Students at College Fed Challenge
02-Dec-2013	08-30 PM	United States	ISM Manufacturing PMI	55.1	56.4	-1.30	1.35	Neutral
03-Dec-2013	09-00 AM	Australia	RBA Cash Rate Target	2.5%	2.5%	0.00	0.05	Neutral
03-Dec-2013	03-30 PM	European Monetary Union	Producer Price Index (MoM)	-0.2%	0.1%	-0.30%	0.45	Neutral
03-Dec-2013	03-30 PM	European Monetary Union	Producer Price Index (YoY)	-1.0%	-0.9%	-0.10%	0.45	Neutral
03-Dec-2013	04-00 PM	United Kingdom	BOE Publishes Record of Financial Policy Committee
04-Dec-2013	03-30 PM	European Monetary Union	Gross Domestic Product s.a. (QoQ)	0.1%	0.1%	0.00%	0.23	Neutral
04-Dec-2013	07-00 PM	United States	Trade Balance	$-40.2B	$-41.8B	1.60$	3.21	Neutral
04-Dec-2013	08-30 PM	United States	New Home Sales (MoM)	0.430M	--	0.43	0.01
04-Dec-2013	08-30 PM	Canada	Bank of Canada Rate Decision	1%	1%	0.00	0.00	Neutral
04-Dec-2013	09-00 PM	United States	EIA Crude Oil Stocks change		2.953M		3.45
05-Dec-2013	00-30 AM	United States	Fed's Beige Book
05-Dec-2013	05-30 PM	United Kingdom	BoE Interest Rate Decision	0.5%	0.5%	0.00%	0.00	Neutral
15-Dec-2013	05-30 PM	United Kingdom	Bank of England Monetary Policy Committee Decision
05-Dec-2013	06-15 PM	European Monetary Union	ECB Interest Rate Decision	0.25%	0.25%	0.00%	0.07	Neutral
05-Dec-2013	07-00 PM	European Monetary Union	ECB Monetary policy statement and press conference
05-Dec-2013	07-00 PM	United States	Gross Domestic Product Annualized	3.0%	2.8%	0.20%	0.66	Neutral
05-Dec-2013	09-00 PM	United States	EIA Natural Gas Storage change		-13B		33.60
06-Dec-2013	07-00 PM	United States	Nonfarm Payrolls	183K	204K	-21.00	43.00	Neutral
06-Dec-2013	07-00 PM	United States	Unemployment Rate	7.2%	7.3%	-0.10%	0.13	Neutral
06-Dec-2013	08-25 PM	United States	Reuters/Michigan Consumer Sentiment Index	76	75.1	0.90	3.26	Neutral

Technical Analysis - MCX Copper, NG, Gold, Silver And Crude Oil.

Gold (Rs 30,236)

The MCX gold futures contract has been stuck in a narrow range between Rs 29,600 and Rs 30,500 all through November. Traders have to wait for a breakout of this range to get clear idea on the short-term trend and take positions accordingly. The target on a breach above Rs 30,500 will be Rs 31,500 while a decline below Rs 29,600 can target Rs 28,560. The medium-term outlook will be bearish as long as the contract trades below Rs 31,500. Decline below the significant 200-day moving average support, currently at Rs 28,562, will push the contract lower to Rs 25,400.

Silver (Rs 44,274)

The MCX silver contract has been losing momentum in its current downtrend. Last week’s fall was accompanied by low volumes which reflect a high possibility for a corrective rally. But since the trend is down, traders can go short now and go shorting it further on rallies to Rs 46,000-46,500 with a stop-loss at Rs 47,450. The target on the downside is Rs 41,400. Key short-term resistances are at Rs 46,270 and Rs 46,585. For the medium-term, Rs 40,000 will be a critical support level. Whether this support holds or gets broken will set the trend for the medium-term.

Copper (Rs 444.4)

The MCX copper has been range-bound moving between Rs 440-447 in the last week. Traders can stay back until clear signals emerge. The trend, however, is down and the contract has significant resistance at Rs 455. Fresh shortposition can be initiated if a rise from current level fails to breach Rs 455. Stop-loss can be kept at Rs 465. However, if the contract declines below Rs 440 immediately, go short with a stop-loss at Rs 447. The target for both cases mentioned above will be Rs 430. The medium-term trend in the contract is also down capable of falling to Rs 410 as long as it trades below Rs 460.

Crude oil (Rs 5,839)

The MCX crude oil contract has been consolidating sideways for the last five weeks between Rs 5,750 and Rs 6,100 within the overall downtrend. Traders have to wait for a breakout of this range to take a position. However, the short-term trend is down. Short positions can be initiated on a decline below Rs 5,750 with a stop-loss at Rs 6,150. The immediate near-term target will be Rs 5,650 and the short-term target will be Rs 5,400. On the other hand, if an immediate decline below Rs 5,750 gets averted and the contract breaches Rs 6,100, then a corrective rally to test the resistances at Rs 6,250 and Rs 6,400 is possible. In that case, traders can wait to enter short position at higher levels near Rs 6,400.

Natural gas (Rs 246.7)

The MCX natural gas has given a bullish breakout of its Rs 210-240 range and has risen sharply by 4.6 per cent last week. The outlook is bullish. Traders can initiate long positions at current levels and accumulate more long position on declines to Rs 240-235. Stop-loss can be kept at Rs 225 for a target of Rs 270. The contract has been moving in a bull channel. Last week’s breakout above Rs 240 has opened the doors for a fresh rally to the upper end of this channel. The channel resistance at Rs 270 will now be a key medium-term resistance for the contract in the coming weeks. There is a possibility for the price to turn down from this resistance.

Know your Margins for NSE Futures and Options (NFO), MCX or CDS, (Tech Tools)

Do you trade in future and options? As a Futures & Options (F&O) trader, you may want to know the margins you require ahead of making a trade. However, margins vary depending on factors such as the underlying asset, volatility, market lot size and expiry. This could make calculating margins a tricky affair.

Zerodha (http://zerodha.com/margin-calculator/SPAN) has a calculator to compute the margin requirements for options, futures and more complex F&O strategies in equity, currency and commodities.

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However, we feel the tool should offer current prices, which will help guide the user with the strike price for options. When writing options, if the strike price entered is not valid, the tool does not throw up the margin needed, nor does it suggest a list of strike prices. Also, we noticed issues, such as when a trade was deleted, total margin was not updated accordingly.