- By Mr. Prithviraj Kothari, MD, RSBL (RiddiSiddhi Bullions Ltd.)
Yes indeed,
dollars helped in making gold look attractive.
This week gold prices
benefited from the U.S. dollar's fall to a seven week low against a basket of
currencies. Broad USD weakness was the theme of the day yesterday; leaving most
of the people puzzled about the negative performance of late and force some to
throw in the towel on their long positions.
Precious
metals edge higher on modest demand in early Asia, but worries about the
Federal Reserve starting to withdraw its stimulus program with an improvement
in economic growth is likely to weigh on prices. The Fed's stimulus program has
been supportive for gold prices as it triggers demand for the metal considered
a hedge against inflation.
Bullion has
traded as low as $ 1,180 an ounce in late June on fears of massive fund selling
as the Fed looked set to cut its bond buying stimulus as early as September.
While western
investors focus on Federal Reserve’s quantitative easing tapering timelines,
the bigger gold story is taking place in China. The negative sentiment
currently attributable to the gold price masks the accumulation of gold by the
Chinese who are set to overtake India this year as the world’s top gold
consumer. This is a startling turnaround given the Chinese embargo on gold
ownership was only lifted as recently as 2003.
Chinese exports
rose 5.1% from a year earlier, rebounding after from June's 3.1% fall, the
customs agency said. However, the medium-term economic outlook remains volatile
with a broader range of outcomes now possible. China gold production reached 156 tons during
5M2013, up 11% YoY (7.5% in May and 8.6% in 2012), according to China Gold
Association.
In
2012, China’s gold consumption reached 776 tons, the world’s largest, up 8%
YoY, representing import reliance of 49%, down from 53% in 2011. However, note
that gold accounted for only 1.2% of China’s total foreign reserves according
to the World Gold Council, compared to 69.8% in US. This prompts China to
consider further accumulation of gold to diversify the reserve mix.
Silver and platinum group metals also rallied after
data showed Chinese imports of industrial commodities and raw materials rose in
July and the world's second-largest economy showed signs of stabilizing after
more than two years of slow growth. Moreover the good economic
figures out of Germany, which shows that despite fears to the contrary, exports
are picking up from manufacturing economies. This coupled with the fact that
the markets were running short and the very thin volumes, created the spike. In
the past, I have always recommended that Platinum is a buy on Dips. The way it
has rallied, it is all thanks to the improving economic scenario.
While in India,
though the Dollar weakness and a mostly supportive movement in global equities
pushed up the yellow metal today but gains in Indian Rupee ensured that the
rise in local futures is tepid
India's gold demand has remained moderate over last few weeks after a spike in April when prices slumped towards INR 25000 per 10 grams in the major local markets. However, World Gold Council is upbeat about the demand for jewellery picking up momentum in the coming quarters in the country and even projected demand for gold touching 865-965 tonnes in 2013, thus exceeding 2012's record.
Currently, most
of the Indian companies dealing with Gold related products are facing a severe
crunch to get metal. With the government rules and regulations, it has been
really hard for the importers. I do expect that Government could shed some more
light on the recently announced measures to curb Gold imports.
Silver support is at $20.00 and $19.75, resistance is at $20.40 and $20.70.
“The primary purpose of this blog by Prithviraj Kothari - MD, RSBL, is to educate the masses of the current happenings in the Bullion world.”
~ Previous blog: "WAVES OF DISAPPOINTMENT FOR THE MARKET":
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