India: Don’t Buy Gold For One Year

Yesterday’s strong US data continues to hurt gold prices this morning as it sets up for a second day of losses. This morning Shanghai Gold Futures continued to fall this morning after falling 1.5% yesterday.

Yesterday holdings in the SPDR gold trust fell to 1,003.53 tons of gold bullion bars, lows not seen since February 2009. This is the 17th consecutive week that holdings in gold ETFs have fallen in reaction to a weak price of gold.

Although mass-redemptions in ETFs, seen in April and May, appear to have slowed (and paused last week) there is still some nervousness, many analyst expect to see further redemptions in the medium-term.

Unemployment, the seemingly biggest factor the Fed’s decision over the status of QE, came up trumps with positive numbers yesterday. New claims on unemployment were down. May’s retail sales also showed signs of improvement, coming in higher than expected. Wall Street stocks rallied by more than 1% yesterday on the back of the data

It seems each month the markets look further ahead to the FOMC meeting than they did previously. This month’s meeting will be held on the 17-18th. Whilst there is much talk of tapering, economists and traders surveyed by Bloomberg still believe the Fed will continue to stimulate the economy, even if not at the pace currently seen. Note, no-one is discussing a global tightening of easing.

Despite the improved US data, markets continue to worry about the health of the global economy – as demonstrated by the ongoing frets over monetary easing being pulled. The recent stock market declines in Asia as well as rising government bond yields across the globe are all causing some concern.

It may be that investor sentiment is not yet anxious enough to see gold bullion take up its full safe-haven status. Sell offs in US Treasuries, the US dollar index and the gold price show that not many are rushing into usual safe-havens. We may have to wait for things to get slightly worse in order for gold prices to shine once again.

Asian and global coin demand remain strong

Gold investment demand in China and India is purported to have slowed, however a China Daily article reported differently for the former country.

India’s finance minister said gold bar imports were slowing: “Net gold imports, averaged $135 million a day, in first 13 business days in May till May 20. However, in the subsequent 14 business days, it averaged only USD 36 million, so gold imports have sharply come down. But I would be happy if they come down even further.” The All India Gems & Jewellery Trade Association is said to have asked the Indian government for a discussion on reversing the tax increase. The finance minister did hint that this may only be a temporary measure, until the current account deficit, “Suppose people of India don’t import gold for one year, the whole situation will dramatically change. If we can have it for six months, one year, it will dramatically change the situation of CAD.”

Gold coin demand remains high, the UK mint last week reported strong sales since April, the US Mint is likely to see a record year whilst the Perth Mint also reports a strong year so far.