19th October 2019

Fundamental Outlook

Gold: Looking forward for the coming month, we expect international gold futures to trade mixed with easing trade tensions with US and China after signing a partial trade deal with US having to suspend the tariffs on $250 Billion Chinese goods. Similarly, China has also decided to buy $50 billion US agricultural commodities on a annual basis. This also brought cheers in the global equity markets. Correspondingly, further rise in hopes of FED rate cuts in its upcoming FOMC meeting could weaken the dollar and the dollar index and could support yellow metal prices. Elsewhere, UK and European Union have agreed for a deal before Brexit which has also eased the tensions in the European market, however UK Parliament approval is still pending with Borris Johnson not having a majority and Ireland’s DUP having to reject the deal could limit major downtrend in Gold prices. Hong Kong protests have turned out to be more violent which is currently damaging the Chinese economy along with economic slowdown and low Manufacturing and Service PMI. This could also cushion gold prices from major downtrend. Recent reports of poor GDP of China have added worries about the economy even though they have positively signed a deal with United States. On the domestic front, the near term demand for gold investments and the jewellery sector buying is expected to remain higher owing to the festive buying until Diwali festival. However, prices post Diwali festival are forecasted to decline as hopes of revival of Indian economy has increased with easing corporate taxes which will increase liquidity and increase domestic production and demand. Correspondingly, Indian equity markets are forecasted to further rise owing to above news along with easing global tensions and greater hopes of Brexit deal. Domestic jewellery buying could also see some amount of correction due to current higher gold prices before the peak marriage season in late December. Overall, we expect mixed trend in MCX Gold futures for the month ahead.

Silver: For the coming month, we are estimating MCX silver prices to trade mixed, as US China

trade wars has eased with US having to suspend the tariffs on $250 Billion Chinese goods. Moreover, hopes of Brexit deal by the end of this month has eased the pain in the global markets and reduced investments in precious metals. However, the industrial buying in the global markets seems lower with Chinese industries reducing the demand owing to economic concerns and tensions in Hong king. In the case of India, hopes of revival of the Indian economy could increase the silver investments. However, demand may not surge significantly post Diwali festival and we may see capping in prices of silver. Hence, we are estimating mixed trend in the International and MCX silver prices for the coming month.

Gold prices in the international exchanges witnessed downtrend during the month of September owing to easing trade tensions between US and China as both the countries decided to have fresh talks. Moreover, gold prices also witnessed slump as there were lower jewellery buying the domestic markets due to extremely higher prices. Easing corporate taxes by the central Government of India brought a greater decline in domestic gold prices. In conclusion, there has been a decline of 3.15% and 1.12% in Spot Gold and Comex Gold futures respectively by the end of September, while MCX Gold prices has traded higher by 4.48%.

In the first half of October, MCX Gold futures witnessed uptrend due to concerns of further sluggishness in the Indian economy even though RBI had recently cut the repo rate by 25 basis points. Additionally, depreciation of rupee with respected to dollar with outflow of foreign portfolio investors and global currency wars had increased gold investments. Domestic jewellers had peaked which also supported the prices of gold. International gold prices has traded further mixed to bullish during the first half of October as there was strength in the dollar index and rise in jobless claims in the United States. Moreover, concerns of global slowdown had supported yellow metal prices till 15th October had capped uptrend in global equity markets.

220

174 171

330

182 196

270 262

178

282

108

277

196

227

312

56

153

216

62

178 166 168

136

0

50

100

150

200

250

300

350

US Non Farm Employment Change ('000)

Gold eagle sales during the month of September has reported at 16,500 ounces, higher by 153.84% compared to 6,500 ounces of the previous month. However American gold eagle coins sales for the above September month has been lower by 73% as compared to Sept’18’s sales of 60,500 ounces.

On the other hand, American Buffalo gold coins sales for July rose by 1000 ounces to 2500 ounces, higher by 66.67% compared to the sales of 1500 ounces of the previous month. However, sales during Sept’19 are also lower by 8500 ounces (77%), compared to the corresponding month last year. In the coming month, eagle & buffalo gold coins sales are estimated to be higher as the overall demand for gold is rising owing to various geopolitical tensions.

12.0013.0014.0015.0016.0017.0018.0019.00

0500

10001500200025003000350040004500

Sep

t'1

8

Oct

'18

No

v'1

8

De

c'1

8

Jan

'19

Feb

'19

Mar

'19

Ap

r'1

9

May

'19

Jun

e'1

9

July

'19

Au

g'1

9

Sep

t'1

9

Eagle Silver Coins (LHS) Spot Silver ($/oz) (RHS)

Source: US. Mint & Choice Research

American Eagle Silver Coins Sales('000 Ounces)

-3.15%

-1.12%

-4.48% -5.00%

-4.00%

-3.00%

-2.00%

-1.00%

0.00%

Spot Gold ($/oz) Comex Gold ($/oz) MCX Gold (Rs./10gms)

Gold Performance in Sept'19 (%)

The above chart shows that Non-farm employment figures in the US; century’s worst devastating effects of hurricane Florence and Michel was witnessed during Sept’18, brought down the non farm employment rate to 108,000 in comparison to previous months. Moreover, it made a new low of 56,000 during Feb’19, due to partial U.S shutdown and later in Apr’19 it made another low of 62,000 due to no major progress in U.S China trade talks.

In the last month, US job scenario growth has shown a decline to 136,000 compared to 168,000 of the previous month. Healthcare jobs increased over the month along with employment in professional and business services. In addition, employment in government services and transportation and warehousing also increased over the month. But then, the rate of inclination had been subdued due to recession issues. But then, easing trade tensions and suspensions of tariffs on Chinese goods could revive the job market in the coming months.

180

200

220

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300 Initial Jobless Claims

Source: Bloomberg, Choice Research

Initial jobless claims as shown in the above chart had been following a declining trend till May’19. However, there has been rise in jobless claims during the last couple of months owing to concerns of slowdown in United States. By 11th October, initial jobless claims has risen again to 214K, higher compared to 210K of the previous month due to concerns that US may face another recession in the coming months as is FED again forecasted to cut interest rates by end of Oct’19.

According to unadjusted data, the biggest rises were observed in California (+7,310); Oklahoma (+848) and New York (+758) while the largest declines were recorded in Illinois (-890); North Carolina (-673) and Arkansas (-545).

The advance seasonally adjusted insured unemployment rate was 1.2 percent for the week ending October 5, unchanged from the previous week's unrevised rate.

The advance number for seasonally adjusted insured unemployment during the week ending October 5 was 1,679,000, a decrease of 10,000 from the previous week's revised level. The previous week's level was revised up 5,000 from 1,684,000 to 1,689,000. The 4-week moving average was 1,669,750, an increase of 3,500 from the previous week's revised average. The previous week's average was revised up by 1,250 from 1,665,000 to 1,666,250.

700720740760780800820840860880900

SPDR Gold Holdings (Metric Tons)

Source: Bloomberg, Choice Research

As shown in the above chart, the yellow metal investments which had been gradually inclining since the month of May’19 due to prevailing geopolitical tensions, has reached the highest levels over the past few years in the month of October amid concerns of further slowdown of the global and the chinese economy. Moreover, there has been steady gold investments over concerns of FED rate cuts in late Oct’19.

Coming to the above Gold-silver ratio, the ratio has been gradually rising since Dec’18 owing to prevailing geopolitical tensions and global economy slowdown. However, there has been a sharp fall in the Gold-silver ratio from the September month onwards with hopes of fresh trade talks between US and China eventually increasing the buying of silver as compared to gold. Later in the month of October there had been revival of gold prices owing to further concerns of global slowdown with IMF having to reduce the global growth rate to 3%. Moreover, Brexit and middle east issues has also increased the gold silver ratio. By 15th October, Gold silver ratio came at 85.08 per ounce, higher compared to 83.05 ounces reported on 31st August. With easing Sino-US trade tensions and Brexit issues , gold silver ratio is forecasted to fall to 78-80 levels during the coming month. The gold-silver ratio represents the number of silver ounces it takes to buy a single ounce of gold. At present, the silver prices are still relatively cheaper and provides greater buying opportunity than Gold.

70

75

80

85

90

95Gold Silver Ratio

Source: Bloomberg, & Choice Research

For the coming month, we are expecting SPDR Gold investments to further rise to 930-940 metric tonnes as FED has given hopes for rate cuts in the current months. SPDR Gold investments are currently in the range of 916-920 metric tonnes during the current month, higher compared to 890-900 metric tonnes range reported during a month ago.

Looking forward for the coming month, we expect international gold futures to trade mixed with easing trade tensions with US and China after signing a partial trade deal with US having to suspend the tariffs on $250 Billion Chinese goods. Similarly, China has also decided to buy $50 billion US agricultural commodities on an annual basis. This also brought cheers in the global equity markets. Correspondingly, further rise in hopes of FED rate cuts in its upcoming FOMC meeting could weaken the dollar and the dollar index and could support yellow metal prices. Elsewhere, UK and European Union have agreed for a deal before Brexit which has also eased the tensions in the European market, however UK Parliament approval is still pending with Borris Johnson not having a majority and Ireland DUP having to reject the deal could limit major downtrend in Gold prices. Hong Kong protests have turned about to be more violent which is currently damaging the Chinese economy along with economic slowdown and low Manufacturing and Service PMI. This could also cushion gold prices from major downtrend. Recent reports of poor GDP of China have added worries about the economy even though they have positively signed a deal with United States. On the domestic front, the near term demand for gold investments and the jewellery sector buying is expected to remain higher owing to the festive buying until Diwali festival. However, prices post Diwali festival are forecasted to decline as hopes of revival of Indian economy has increased with easing corporate taxes which will increased liquidity and increase domestic production and demand. Correspondingly, Indian equity markets are forecasted to further rise owing to above news along with easing global tensions and greater hopes of Brexit deal. Domestic jewellery buying could also see some amount of correction due to current higher gold prices before the peak marriage season in late December. Overall, we expect mixed trend in MCX Gold futures for the month ahead.

SEBI Registered – Research Analyst www.choiceindia.com * Please Refer Disclaimer on Website

The above table showcases American Eagle silver coins sales vis-à-vis average spot silver price on a monthly basis. Silver coin sales totaled at 1,021,000 ounces for Sept’19, higher by 1.39% compared to Aug’19 sales (1,007,000 ounces). However the average Spot silver prices has shown any downside movement during the month of Sept’19, which indicates that the higher silver coin sales had a negative impact in the Global Silver futures during the last month.

As showcased in the above chart, historically silver stocks on COMEX and SHFE have moved in an inverse pattern indicating switch from one market to another. COMEX Silver stocks has been gradually rising and reversal trend has been witnessed in SHFE Silver stocks during the past few years. However, in the case of the current month, easing issues between U.S. China trade wars and lower growth forecasts in global economies has increased stocks in SHFE as well as in the COMEX. By 15th October 2019, SHFE stocks has inclined by 0.49% to 1.430 million tonnes while COMEX silver stocks increased by 2.57% to 3.141 million tonnes.

For the coming month, we are estimating MCX silver prices to trade mixed, as US China trade wars has eased with US having to suspend the tariffs on $250 billion chinese goods. Moreover, hopes of Brexit deal by the end of this month has eased the pain in the global markets and reduced investments in precious metals. However, the industrial buying in the global markets seems lower with Chinese industries reducing the demand owing to economic concerns and tensions in Hong king. In the case of India, hopes of revival of the Indian economy could increase the silver investments. However, demand may not surge significantly post Diwali festival and we may see capping in prices of silver. Hence, we are estimating mixed trend in the International and MCX silver prices for the coming month.

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10001500200025003000350040004500

Sep

t'1

8

Oct

'18

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8

Dec

'18

Jan

'19

Feb

'19

Mar

'19

Ap

r'1

9

May

'19

Jun

e'1

9

July

'19

Au

g'1

9

Sep

t'1

9

Eagle Silver Coins (LHS) Spot Silver ($/oz) (RHS)

Source: US. Mint, Choice Research

American Eagle Silver Coins Sales('000 Ounces)

Global silver prices had witnessed decline during the previous month owing to easing, trade tensions between US and China, and FED rate cuts which brought positivity in the domestic markets. But then, industrial buying came down due to concerns of slowing global economies. Moreover, domestic silver prices had also declined during Sept’19 owing to lower domestic jewellery buying and industrial buying.

-7.49%

-8.89%

-5.78%

-10.00%

-8.00%

-6.00%

-4.00%

-2.00%

0.00%

Spot Silver ($/oz) Comex Silver ($/oz) MCX Silver (Rs./kg)

Silver Performance in Sept'19 (%)

150170190210230250270290310330

10001050110011501200125013001350140014501500

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-17

Feb

-18

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Jun

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Oct

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SHFE Silver (LHS) Comex Silver (RHS)

Trend in COMEX and SHFE Silver Stocks

Source: Bloomberg & Choice Research

SEBI Certified – Research Analyst www.choiceindia.com

On the daily chart, MCX Gold price has been moving below the Falling Trendline from last couple of trading days, which adds pressure on the counter. Moreover, the price has also retreated from the upper “Bollinger Band” and the 50 days Simple Moving Averages, which indicates bearish strength for the near term. Similarly, the COMEX price of Gold has shifted below the $1500; and it has been moving below the 48 Days High-Low Line Moving Average Channel, which acts as a resistance zone for the price. In addition, momentum indicator RSI (14) has also shown negative crossover, which indicates that a bearish move may continue for the short term. So based on the above technical structure, we expect sideways to bearish move in MCX Gold (Dec) Future for the month ahead. On the higher end, price may move towards Rs. 38980 level, while on the lower side, it may find support around Rs.36800 level.

Technical Outlook

MCX Gold

SEBI Registered – Research Analyst www.choiceindia.com * Please Refer Disclaimer on Website

On the daily chart, MCX Silver price has been trading in the lower band during the last couple of trading sessions and has also been facing the resistance of the Falling Trendline. Moreover, the price has retreated from the upper “Bollinger Band” formation, which adds pressure on the counter for the short term. Furthermore, the price has also sustained below 21*50 days Simple Moving Averages and Parabolic Sar, which is another indication for the bearish continuation in the near term. Additionally, momentum indicator RSI(14) and MACD have been moving with negative crossover, which signifies downtrend move in the counter. So based on the above technical structure, we expect sideways to bearish move in Silver (Dec) Future for the month ahead. On the higher end, price may move towards Rs. 47900 level, while on the lower side, it may find support around Rs.43000 level.

MCX Silver

Technical Outlook