Daily Nugget: India’s Near-Record Silver Demand

Gold remains in a tight-range despite the ongoing standoff in the US government (more on that later). Whilst some seem surprised that the price of gold hasn’t responded more positively to the shutdown, there appears to be an expectation that politicians will reach a last minute agreement before the debt-ceiling crisis on October 17.

The return of China to the market-place helped to support the gold price, but Hong Kon dealers told Reuters it was only a small amount of buying interest. Demand remains strong in China were imports from Hong Kong were 110.5 tonnes in August.

Gold and the US

The US shutdown looks increasingly likely to last more than just a week at the moment neither side in Washington is showing any sign of compromise. Yesterday Obama warned that there was no immediate end to the shutdown saying that Republicans in Congress are making it impossible to move forward on the shutdown or raising the ceiling as they were demanding too many concessions.

UBS, in a note yesterday, said they believe it may take a ‘severe’ market reaction in order to put enough pressure on both sides to force a compromise. The combining of the solutions for both the shutdown and the debt ceiling is favourable, however it does create more short-term risk.

Should the US government miss, or even delay, a debt payment the gold price will react positively as US Treasury yields would most likely fall. This is according to HSBC whose fixed-income research department’s latest report states that if the debt ceiling fails to be raised by Congress then a delay of payment by the US Treasury is more likely rather than a bond default (as seen in 2008 with Lehman brothers). Whilst this would appear beneficial in the short-term, according to HSBC, there would be a credibility issue for the US financial system which would drive more investors into gold investment.

And now to the third leg of the current US-tripod that gold speculators appear to be focussing on – tapering. Today the minutes from the FOMC’s September meeting will be released. Once again market participants are looking out for any kind of hint of when tapering might take place. The minutes are expected to receive even more scrutiny than normal in the absence of government data releases.

Speaking of the Fed, this morning Obama will nominate Janet Yellen as Fed Chair. The markets appear to be relieved as, basically, she is unlikely to radically change Fed policy. She is seen as a dove when it comes to monetary policy and has said in the past that she would allow inflation to rise as a trade-off for achieving fed goals.

Silver demand in India

According to GFMS India imported 4,073 tonnes of silver, in the first seven months of the year. This was double 2012′s total but has not topped the record 5,048 tonnes in 2008. Whether this trend will continue into this year as import controls are clarified and bullion supply gets moving, remains to be seen. Experts expect the demand for silver to remain high however as gold prices stay elevated but disposable incomes in rural areas increase thanks to a good monsoon season.