IS THE GOLD CYCLE ABOUT TO TURN???

-By Mr. Prithviraj Kothari, MD, RSBL (RiddiSiddhi Bullions Ltd.)

As the US economy recovers and the investment holdings collapse, the cycle for gold is probably expected to turn. Gold is caught between conflicting signals neighbouring the prospects for continued central bank monetary accommodation. 

Gold traded in a narrow range and hovered around $1,575 an ounce on Wednesday, evoking little interest from investors who switched to riskier assets as confidence in the global economy grew. The exodus of investment from gold-backed exchange-traded funds underscored the sober sentiment for the precious metal and overshadowed physical purchases of the metal in Asia

Private investors added physical gold following the metal's heavy sell off late in February, underpinning a market hit hard by heavy fund liquidation last month.

SPDR Gold Trust, the world's biggest gold ETF, said its holdings dropped on Tuesday in the eleventh session of straight decline to a 16-month low of 1,244.855 tons.

Spot gold edged up 0.2 percent to $1,585, drifting within a $1,564-$1,587 range that it established recently. Spot gold has fallen nearly 6 percent so far this year and is down about 18 percent from a record high of $1,920.30 an ounce hit in September 2011.

The price of gold fell to a seven-month low near $1,550 an ounce on Feb. 21, hit by talk of hedge fund liquidation and fears the Federal Reserve might halt its stimulus earlier than expected. 

Gold prices dipped to two-week low by falling Rs 200 to Rs 29,850 per 10 gm in the domestic market this Friday on stockists selling, triggered by a weak global trend. Silver followed suit and dropped by Rs 360 to Rs 54,960 per kg on reduced off take by industrial units and coin makers.

Traders said stockists selling in tandem with a weak global trend where gold fell before a report that is forecast to show the US labour market improved, damping expectations for further stimulus and boosting the dollar, dampened the sentiment. As expected, there was great improvement in the labour report. Gold lowered On Friday after U.S. employment data showed the economy added many more jobs last month than expected. Employers added 236,000 jobs last month, far above the 160,000 jobs forecast by economists. The unemployment rate fell two-tenths of a percentage point to 7.7%, the lowest level since the end of 2008. The report is a clear indication that the [U.S.] economy is successfully navigating against the headwinds from fiscal graveness.

Attention will now turn to the next meeting of the Federal Reserve's policy board, scheduled for March 19-20, to see if the central bank is any closer to rolling back its easy-money policies in the wake of strengthening economic data. The Fed has said it will consider raising policy interest rates when unemployment falls to hits 6.5%.

Now the question of concern for the precious metals market is that how far the Fed will continue its stimulus plan.

“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 -

"Post budget reactions"

http://riddisiddhibullionsltd.blogspot.in/2013/02/post-budget-commment.html

POST BUDGET REACTIONS

Reactions:

Let me first list down the important highlights of the budget with regards to the Bullion, Gems and jewellery Industry:

1. FM has announced to levy Commodity transaction tax (CTT) of 0.01% on all non-agro commodity trades such as Gold, Silver, non-ferrous metals and crude oil.

2. To prevent harassment to passengers, the government has proposed to increase the limit of duty-free import of jewellery via passenger baggage to INR 50,000 for males and INR 1,00,000 for females. The rule has been amended for Indian passenger who has been residing abroad for over a year or a person who is transferring his residence to India.

Budget 2013 has been neutral

          India's greatest worry is current account deficit and when you need more than $75 bln this year and next year to fund current account deficit, I was expecting that a Duty hike is on the cards. Fortunately that is not the case. The government has neither imposed any restriction nor has it hiked the import duty on gold.

I did expect CTT tax to be introduced. But CTT tax will only add INR 300 per kilo of Gold. Though a nominal amount, but unnecessarily added on a common man’s purchase of Gold.  I feel this should have been introduced only when Options product had been established in the commodity’s exchange along with Tax structure that is currently applicable while trading in Equity markets. This would create a level playing field between the stock investor and the commodity exchange investor

Increasing the Duty free limit on gold for a passenger coming to India (conditions already given), is a positive move undertaken by the government, as it will definitely help in curbing the imports to some extent and reduce the pressure on forex.

I was expecting some announcement on the R&D front, new financial instruments to extract Gold lying in India so as to increase CAD, but these were missing.

On a scale of 1 to 10, I would personally rate this budget as 6.