Gold Has Longest Rally In 16 Months

The gold price came within reaching distance of $1,280 yesterday before falling back 0.2%. The $1,279.61 price level is the highest the yellow metal has reached in 2 months and comes after the longest rally in nearly a year and a half. The gold price is likely to see some swings during a week of heavy economic releases and the FOMC meeting.

This week the FOMC will hold their first policy meeting of 2014, which commences tomorrow for two days. Gold is expected to cool off prior to the announcement following the meeting, however it is likely to have priced in the possible $10 billion taper.

The gold price received a boost overnight thanks to falling US equities and emerging markets remaining under pressure. There are several stories circling around that a cash crunch is about to rear its head in China.

Yesterday, volumes on the Shanghai Gold Exchange were lower than on Friday as rising prices may have slowed buying. However, the premium was at $10, compared to $7 seen last week.

In Hong Kong there have been reports of ‘robust sales’ at jewellery stores ahead of the Lunar New Year. As well as the falling gold price, sales have also been boosted thanks to it being the ‘Year of the Horse.’ Apparently individuals are more likely to want to wear the horse symbol than the snake which is associated with being evil and lazy.

Every week there appears to be a new tale regarding pressured coin supplies. This week it is the turn of the Austrian Mint, Muenze Oesterreich AG, which is reportedly running 24 hours a day. According to Bloomberg, the Mint is producing coins as fast as it can, having taken on new employees and added extra shifts. This is just one of many tales from the Mint industry that shows the growing demand for physical. All whilst banks such as Goldman Sachs tell us the gold market is done for.

India’s Finance Minister Palaniappan Chidambaram has said the country can review its gold import restrictions, if the current account deficit is under control, ‘“We can revisit curbs on gold imports by end of the [financial] year but let me hasten to add that it will happen only after we get a firm grip on the current-account deficit.”

The Minister said that gold smuggling is believed to be bringing in between 1-3 tonnes every month. Recent developments in the world’s second largest gold market include Bachhraj Bamalwa, director of the All India Gems & Jewellery Trade Federation, stating that the government expects the 20% export requirement to be put aside by the end of March. Also, last week Sonia Gandhi, president of the ruling Congress party, wrote a letter seeking the removal of the controls on the gold market.