Ever since I have started my blog, you must have noticed that I first analyse the international markets and then the domestic markets. But since this week was an important and crucial week for gold in Indian market, as it was the newly formed government’s first budget since election, I would like to glance through the domestic markets first.
The previous government had over the past two years raised the import tax on gold to 10% from 2% and mandated that 20% of imports had to be re-exported to stem a slide in the value of the rupee and narrow the current-account deficit. There were widespread expectations that some reduction in the import duty would be announced in the Budget. Traders expected at least a 2-4 per cent cut of import tax on gold. Also, some relaxation in the 80:20 scheme that was imposed by the Reserve BANK of India (RBI) last year, was expected.
But traders were left astonished as India’s new government left import taxes on gold unchanged in its annual budget. Premium on gold had disappeared in the last two weeks on expectations that the government would relax restrictions on imports as India’s current-account deficit more than halved to $32 billion last fiscal year.
After Finance Minister Arun Jaitley concluded his budget speech on Thursday, gold in India climbed $30 above the international price of $1329.50 an ounce. Indian gold futures jumped 2% on Thursday, widening the premium over global prices which had narrowed on the duty cut expectation.
Simultaneously, we saw gold prices zooming in the international markets too. Factors for the same were:
EU Data: Gold rallied on sliding European equities and a weak euro zone industrial output data. Given the recent weak economic data coming out of the European Union, traders will be closely watching European bond yields, for clues on European investor confidence. The European Union sovereign debt crisis is not that far removed from the market place.
Chinese Data: Chinese trade data was much below expectations. China’s exports grew by 7.2%, year-on-year, in June, which was below market expectations of a 10% rise
Portugal trouble: There were reports that a major bank or banks in Portugal are in trouble. Europe’s stock markets suffered heavy falls on Thursday as troubles at Portugal’s largest listed lender, Banco Espirito Santo (BES), sparked fears of a possible return to the dark days of the euro zone debt crisis. Banco Espirito Santo SA sought to calm investors after a parent company missed payment on short-term notes.
Middle East tensions:
Middle East tensions escalated as Israel this week launched a military offensive on the Gaza strip. Heavy fighting too was reported overnight. This once again focused traders attention on the Middle East. At least 78 Palestinians, most of them civilians, have been killed. This situation is a potential time bomb that could further incite unrest in other parts of the Middle East.
Ukraine’s fight back: Ukrainian forces regained more ground but sustained further casualties on Thursday in clashes with separatists, while two Western allies urged Russia’s Vladimir Putin to exert more pressure on the rebels to find a negotiated end to the conflict. Russia threatened Ukraine on Sunday with “irreversible consequences” after a man was killed by a shell fired across the border from Ukraine, an incident Moscow described in warlike terms as aggression that must be met with a response.
FOMC Meet: The market place has pretty much digested Wednesday afternoon’s FOMC minutes from June. They further stated that the Fed is on track and to end its monthly bond-buying program (quantitative easing) in October. Further there was no specific sign as to when the U.S central bank will start to raise interest rates but there were definitely expectations in the market that it won’t take place this year and this sentiment was further reinforced by Wednesdays latest FOMC minutes.
After analyst downgrades of gold that we’ve all heard over the last year, money is now pouring into the metal at the slightest bit of unease.
The value of the gold funds rose by $5 billion this year as prices rallied 10 percent. The metal has rebounded from last year’s 28 percent plunge that was triggered by muted inflation and as investors shunned the metal in favour of equities. The Hedge funds and money managers increased their bullish bets on Gold by 7,344 lots to 14,272, the highest since March, in the week to July 8. In Silver, they raised their bullish bets by 7,819 contracts to 44,517, a peak since December, according to the data from the Commodity Futures Trading Commission on Friday.
For now, Gold’s performance has proven the bears wrong so far this year. The bulls are being rewarded.
Following the market consensus that had recently emerged, LBMA announce that CME group and Thomson Reuters have been selected to provide the solution for the London Silver Price Mechanism.
|Rs.28,000-Rs.29,000 per 10gm