25th March 2019

Fundamental Outlook

Gold: For the coming month, we expect international gold futures to trade mixed with expectancy of further strengthening of the US dollar and dollar index in the global markets. In addition, rising U.S. equity markets can reduce investments in the yellow metal in the coming weeks. However, with prevailing major issues about US China trade talks is forecasted to support gold prices in the coming weeks. Recent U.S. Recession could also pose a problem and can support gold prices from the lower levels. The twin nightmare of a slowing Europe on top of China is also helping gold bugs advance in the near term. Data showing a contraction in euro zone manufacturing growth, led by Germany. In the case of China, the economy is seen to be further slowing down owing to lower industrial productivity in various sectors. Recent news have also indicated that the Chinese’s economy slowdown has been self inflicted due to the country’s deleveraging campaign and not caused by U.S. tariffs, said by Stephen Roach, a senior fellow at Yale University. Furthermore, there are still uncertainties regarding the Brexit chaos and the decisions that are more likely to be take by the UK Government which could also limit downtrend in Gold prices. Recent FED news of no rate hike for the year 2019 could also limit downtrend in COMEX silver futures. On the domestic front, the near term demand for gold investments and the jewellery sector buying is expected to remain lower owing to upcoming general elections which is more likely to bring further shift in investments from commodities to Indian equity markets. Moreover, rupee appreciation with respect to dollar prices is also forecasted to pressurize Gold prices for the short term period. In consideration with the above factors, we expect mixed to bearish trend in MCX Gold futures for the month ahead.

Silver: For the coming month, we are estimating MCX silver prices to trade lower, with lower domestic demand for silver jewellery in the current period. Furthermore, at same time, overall strengthening of the US economy is likely to increase investments in equity markets. However, prevailing global slowdown concerns and no-deal Brexit could possibly support silver futures from major downside. But then again, stronger dollar index and expectancy of lower silver eagle coins sales for Mar’19 may prominently keep the prices of silver in the lower band. In the case of India, higher investments in the equity markets, stronger rupee with respect to dollar are likely to weaken silver prices during the coming weeks. Hence we are estimating bearish trend in the International and MCX silver prices for the coming month.

Gold prices in the international exchanges witnessed downtrend during the month of February owing to rising US equity markets, easing US-China trade tensions, stronger dollar index, lower jobless claims and overall strengthening of the U.S economy. Correspondingly, MCX gold prices has also declined due to lower buying for gold jewellery in the domestic market and shift in investments into equity markets from commodity markets owing to positive cues about upcoming general elections. In conclusion, there has been a decline of 0.60% and 0.86% in Spot Gold and Comex Gold futures respectively by the end of February, while MCX Gold prices has traded lower by -0.15%.

Similarly in the first half of March, MCX Gold futures witnessed downtrend due to lower demand for gold jewellery and further uptrend in Indian equity markets. Additionally, appreciation of rupee with respected to dollar has also pressurized the prices of gold in the Indian markets. But then, international gold prices has been trading mixed due to prevailing Brexit tensions, unresolved major issued of US-China trade talks, global slowdown concerns, steady monetary policy by the central banks of the U.S. and the other major economies.

Gold eagle sales during the month of February has reported at 22,000 ounces, lower by 87.02% compared to 1,69,500 ounces of the previous month. However, American gold eagle coins sales for the above February month has been higher by 300% as compared to February’18’s sales of 5500 ounces.

On the other hand, American Buffalo gold coins sales for February fell by 17,500 ounces to 6000 ounces, lower by 74.46% compared to the sales of 23,500 ounces of the previous month. However,, sales during Feb’19 are also lower by 2500 ounces (71.43%), 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.

-0.60%

-0.86%

-0.15%

-0.90%

-0.80%

-0.70%

-0.60%

-0.50%

-0.40%

-0.30%

-0.20%

-0.10%

0.00%

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

Gold Performance in Feb'19 (%)

0

5,000

10,000

15,000

20,000

25,000

30,000

020000400006000080000

100000120000140000160000180000

Mar

'18

Ap

r'1

8

May

'18

Jun

e'1

8

July

'18

Au

g'1

8

Sep

t'1

8

Oct

'18

No

v'1

8

De

c'1

8

Jan

'19

Feb

'19

American Eagle (LHS) American Buffallo (RHS)

American Gold Coins Sold (Ounces)

Source: US. Mint, Choice Research

213

128

229 204

187

18

260

220

174 171

330

182 196

270 262

178

282

108

277

196 227

311

20

0

50

100

150

200

250

300

350

US Non Farm Employment Change ('000)

Initial jobless claims as shown in the above chart had been following a declining trend till Sept’18. However, there has been rise in jobless claims during the last couple of months owing to partial U.S. Shutdown earlier this year and ongoing US-China trade tensions. But then by 8thMarch, initial jobless claims has fallen again to 229K, lower compared to 239K of the previous month due to overall growth in US economy and higher dollar index in the global markets.

According to unadjusted data, the largest gains were seen in Illinois (+3,729); Washington (+1,572); Ohio (+1,143) and Texas (+667) while the biggest declines were registered in New York (-16,409); Kentucky (-1,704) and Georgia (-784).

The advance seasonally adjusted insured unemployment rate was 1.2 percent for the week ending March 2, unchanged from the previous week's unrevised rate.

The advance number for seasonally adjusted insured unemployment during the week ending March 2 was 1,776,000, an increase of 18,000 from the previous week's revised level. The previous week's level was revised up 3,000 from 1,755,000 to 1,758,000. The 4-week moving average was 1,766,250, a decrease of 1,000 from the previous week's revised average. The previous week's average was revised up by 750 from 1,766,500 to 1,767,250.

The above chart shows that Non-farm employment figures in the US; shrunk to a 7-year lowest level of 18,000 during Sept’17 due to devastating effects of hurricanes of Harvey and Irma. However, it managed to recover to 271,000 in next month itself. But then again, century’s worst devastating effects of hurricane Florence and Michel was witnessed during Sept’18, brought down the non farm employment rate to 118,000 in comparison to previous months.

In the last month, US job scenario growth has shown significant decline to 20,000 compared to 312,000 of the previous month. The non farm employment rate for Feb’18 is among the second lowest level after Sept’17 owing to partial US shut down witnessed during the start of the current year 2019. However the jobless claims in the United States is still seen to be lower band and we can expect increase in the Non farm Employment change in the coming months due to overall strengthening of the US economy.

As shown in the above chart, the yellow metal investments which had been gradually inclining since the month of Oct’18 due to prevailing geopolitical tensions, has however, observed a decline after first week of February due to uptrend in dollar index and rise in US equity markets. But then, in the coming months, we may not witness major increase in gold investments as the US dollar index is trading higher as compared-

600

650

700

750

800

850

900

950

1000

SPDR Gold Holdings (Metric Tons)

Source: Bloomberg, Choice Research

200

220

240

260

280

300

Initial Jobless Claims

Source: Bloomberg, Choice Research

Looking forward for the coming month, we expect international gold futures to trade mixed with expectancy of further strengthening of the US dollar and dollar index in the global markets. In addition, rising U.S. equity markets can reduce investments in the yellow metal in the coming weeks. However, with prevailing major issues about US China trade talks is forecasted to support gold prices in the coming weeks. Recent U.S. Recession could also pose a problem and can support gold prices from the lower levels. The twin nightmare of a slowing Europe on top of China is also helping gold bugs advance in the near term. Data showing a contraction in euro zone manufacturing growth, led by Germany. In the case of China, the economy is seen to be further slowing down owing to lower industrial productivity in various sectors. Recent news have also indicated that the Chinese’s economy slowdown has been self inflicted due to the country’s deleveraging campaign and not caused by U.S. tariffs, said by Stephen Roach, a senior fellow at Yale University. Furthermore, there are still uncertainties regarding the Brexit chaos and the decisions that are more likely to be take by the UK Government which could also limit downtrend in Gold prices. Recent FED news of no rate hike for the year 2019 could also limit downtrend in COMEX silver futures. On the domestic front, the near term demand for gold investments and the jewellery sector buying is expected to remain lower owing to upcoming general elections which is more likely to bring further shift in investments from commodities to Indian equity markets. Moreover, rupee appreciation with respect to dollar prices is also forecasted to pressurize Gold prices for the short term period. In consideration with the above factors, we expect mixed to bearish trend in MCX Gold futures for the month.

Coming to the above Gold-silver ratio, the ratio has been gradually rising since Apr’18 owing to prevailing geopolitical tensions and global economy slowdown. However, there was a small correction in the above ratio during the initial days of the current year due to truce between US-China trade wars which had improved the industrial buying for silver in the global markets. In addition, there has been overall growth in the US economy which also increased buying of silver over gold in the domestic markets. At present it takes around 84.95 ounces of Silver to buy an ounce of Gold as on 18st Mar’19. Gold prices in the global markets are still on the upside due to earlier mentioned Brexit tensions, unresolved major issues of the US-China trade talks and steady monetary policy decision taken various central banks across the globe. 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.

-to the other global currencies. SPDR Gold investments are currently in the range of 775-780 metric tonnes during the current month, lower compared to 800-810 metric tonnes range reported during the month of February.

65

70

75

80

85

90Gold Silver Ratio

Source: Bloomberg, Choice Research

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Global silver prices had witnessed decline during the previous month owing to further strengthening of the US economy, fall in job less claims and higher dollar index in the global markets. Moreover, prevailing US-China trade talks had reduced the industrial buying for silver in the global markets. Similarly, domestic silver prices had also declined during Feb’19 and in the first half of Mar’19 owing to shift in investments from commodity markets to the equity markets due to positive cues about upcoming general elections.

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. In the case of the current month, prevailing major issues between U.S. China trade wars and growth in US Economy has increased stocks in COMEX eventually reducing stocks/investments in SHFE. By 14th March 2019, SHFE stocks has slightly declined by 0.73% to 1.226 million tonnes while COMEX silver stocks slightly increased by 0.97% to 3.017 million tonnes.

For the coming month, we are estimating MCX silver prices to trade lower, with lower domestic demand for silver jewellery in the current period. Furthermore, at same time, overall strengthening of the US economy is likely to increase investments in equity markets. However, prevailing global slowdown concerns and no-deal Brexit could possibly support silver futures from major downside. But then again, stronger dollar index and expectancy of lower silver eagle coins sales for Mar’19 may prominently keep the prices of silver in the lower band. In the case of India, higher investments in the equity markets, stronger rupee with respect to dollar are likely to weaken silver prices during the coming weeks. Hence we are estimating bearish trend in the International and MCX silver prices for the coming month.

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 2,157,500 ounces for Feb’19, lower by 46.29% compared to Jan’19 sales (4,017,500 ounces). However, the average Spot silver prices has not shown any downside movement during the month of Feb’19, which indicates that the lower silver coin sales had a low impact in the Global Silver futures during the last month.

12.00

13.00

14.00

15.00

16.00

17.00

0500

10001500200025003000350040004500

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

Source: US. Mint, Choice Research

American Eagle Silver Coins Sales('000 Ounces)

150170190210230250270290310

1000

1200

1400

1600

1800

2000

2200

SHFE Silver (LHS) Comex Silver (RHS)

Trend in COMEX and SHFE Silver Stocks (tonnes)

Source: Bloomberg, Choice Research

-2.80%

-3.50% -3.19%

-4.00%

-3.50%

-3.00%

-2.50%

-2.00%

-1.50%

-1.00%

-0.50%

0.00%

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

Silver Performance in Feb'19 (%)

SEBI Certified – Research Analyst www.choiceindia.com

Technical Outlook

MCX Gold

Gold price has slipped almost 4% during the month as higher rupee against dollar has been keeping the yellow metal under pressure. On a weekly time frame, MCX Gold price has found the support at 50% “Retracement Level” and pulled back from there. Moreover, weekly price has sustained above “Ichimoku Cloud”, which indicates bullish sentiments in the counter. On the daily chart, price has reversed after taking a support at 61.8% Retracement Level and lower “Bollinger Band” formation, which acted as immediate support for the prices. On the other hand, COMEX Gold price has pulled back from the bottom and sustained above major psychological level of $1300 level and 100 days Exponential Moving Average, which may support the prices to move further upward. In addition, a momentum indicator RSI (14) and MACD has shown positive crossover on the daily chart. So based on the above technical structure, we expect sideways to bullish momentum in MCX Gold (June), on the higher end, price may move towards Rs. 33000 levels, while on the lower end, it may find the support around Rs. 31300 levels.

SEBI Certified – Research Analyst www.choiceindia.com

Technical Outlook

MCX Silver

On the daily chart, the MCX Silver (May) price has taken support at 37700 which is a 50% “Retracement level” of its prior uptrend from Rs.34980 to Rs.40993, which suggests a bounce back movement in the counter. Moreover, price has given Falling Trend line breakout and sustained above the crucial support level. Furthermore, Price has also found the support at lower “Bollinger Band” formation and shifted into positive zone after a long correction on the daily chart. In addition, a momentum indicator RSI and MACD has shown positive crossover; which adds more bullishness to the price. So based on the above technical structure, we expect sideways to bullish momentum in MCX Silver (May), on the higher end, price may move towards Rs. 40000 levels, while on the lower end, it may find the support around Rs. 37000 levels.

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