247Bull.com Editor: Most investors still seem to be convinced that the US Fed is going to begin reducing its asset purchases in the next few months. If the Fed were indeed considering such action (which we sincerely doubt), the recent spike in bond yields (both in the US and in Japan) is likely to give them reason to pause. Much of the so-called “economy recovery” in the US has been predicated on higher home prices and a rising stock market. However, recent talk of “tapering” by various Fed officials has caused a selloff in equities and a spike in bond yields which is potentially damaging to the boom in housing. The Fed will have seen the recent drop in mortgage applications and April’s 16.5% drop in housing starts. It will also be aware of the drop in consumer spending, the plunge in year-over-year US import growth (which is now in negative territory), and the 0.7% drop in the Producer Price Index (PPI) which shows that deflationary pressures are building. Over the next few weeks we expect the language coming out of the Fed to turn a great deal more dovish.
The wholesale price of gold flipped yet again either side of $1400 on Thursday in what dealers called “choppy” trade ahead of tomorrow’s much-anticipated US jobs data for May.
Asian stock markets followed Wall Street’s overnight loss to finish lower, but European equities rallied as major government bonds held flat.
Commodities slipped even as the Dollar fell to new 4-week lows after the Bank of England and the European Central Bank both left monetary policy unchanged at their June meetings.
Silver ticked higher to $22.65 per ounce.
“On any downside below $1400 per ounce,” said Standard Bank analysts in a note, “we still feel that physical demand should once again return and thereby limit moves lower.
“Since April this support from the physical market has prevented gold from pushing significantly below $1360 per ounce.”
Officials in India – the world’s No.1 – today urged banks to deter consumer demand for gold after raising import duty to 8% on Wednesday.
In China – the world’s second-largest gold buying nation – “The ongoing Shanghai arbitrage is the main attraction for demand,” says a trader in Sydney, quoted by Reuters.
Prices of Shanghai gold futures held some $20 about international benchmarks on Thursday. China’s markets will be closed for the first three days of next week for the Dragon Boat Festival.
In the United States – world No.3 for gold jewelry and investment purchases – demand for American Eagle gold coins remains “unprecedented” according to US Mint acting director Richard Peterson.
“We are buying all the coin blanks [which suppliers] can make.”
Anti-government protests meanwhile continued in Turkey, the fourth-largest market for gold in 2012.
“While [India's] duty hike may make bullion more expensive,” writes HSBC analyst James Steel, “it is important to note that gold prices in local currency terms are currently lower than at any time in the last year”
Prices to buy gold in Indian Rupees “are still at attractive levels,” says Steel.
A day after imposing new blocks on legal gold imports, the Indian government yesterday hiked bullion import duty from 6% to 8% by value – an 8-fold increase from the start of 2012, when New Delhi began blaming gold jewelry and investment purchases for India’s large balance of trade deficit.
“This shows that the Indian government is very serious about reducing gold imports,” says one bullion dealer.
While the immediate impact will be higher prices for Indian households, “The nature of demand at the retail level is such that restricting supply will not be effective in the long run,” says India’s managing director at market-development organization the World Gold Council, P.R.Somasundaram.
“[It's] likely to lead to…demand being met increasingly through unauthorised channels, which will not be positive for either the economy or for society.”
Also known as the “parallel market”, smuggling may account for 20% or more of India’s total imports in 2013, according to one estimate quoted by the Economic Times.
Called “wasteful expenditure” by one senior official this morning, household gold demand should be further deterred by advising customers against buying gold coins, finance minister P.Chidambaram told the same banking conference in Mumbai.
Thursday morning however the Rupee fell, down to 57 per US Dollar for the first time in 12 months and very near its all-time record low.
Adrian Ash | BullionVault