Is India’s Gold Market Recovering?

Strengths

• The best performing precious metal for the week was gold, off just 1.02 percent despite a Fed rate hike.  The Fed may not be in a position to continue with multiple rate hikes. Mike McGlone, BI Commodity Strategist, points out the current situation that both crude oil futures and Treasury bond yields are falling. Since 1983, the Fed has never sustained a rate hike cycle while both crude and Treasuries are falling.
• Gold has risen from a three-week low as investors digest the latest rate hike and anticipate the probability of additional rate hikes, reports Bloomberg. Suki Cooper, an analyst with Standard Chartered, writes, “If the market starts pricing in the end to the current hiking cycle, this would remove a major headwind for gold and allow prices to breach the stubborn $1,300 threshold in a sustained move higher.”
• Bloomberg reports that public sector investors increased their net gold holdings to an estimated 31,000 tons last year, an increase of 377 tons. This is the highest level since 1999.

Weaknesses

• The worst performing precious metal for the week was silver with a loss of 2.90 percent.  Money managers cut their net-long by about 10 percent this past week.  For the second week in a row, gold traders and analysts surveyed by Bloomberg are bearish. This is the first time survey results have indicated two-week run of bearish outlook since December.
• Gold futures have had the longest losing streak in three months, as investors have anticipated the Fed’s actions this week. Bullion futures for August delivery closed down for the fourth straight session earlier this week.
• Palladium has declined after what some analysts see as an unjustified surge. The overall auto market, including the Chinese auto market, is a key demand driver for palladium, and that market is faltering.

Opportunities

• As investors have sensed the Fed’s reluctance to continue multiple rate hikes, bullish gold investors are increasing their holdings in gold. Bloomberg reports that investors have added $675 million into the SPDR Gold Shares physical bullion ETF, taking the ETF to a six-month high. In addition, gold futures have climbed 10 percent this year on doubts that President Donald Trump’s economic agenda will make it through Congress and uncertainty around the U.K.’s Brexit plan.

• India’s gold market appears to be recovering after the demonetization scheme last fall and with efforts to improve transparency, reports Bloomberg. Some new policies under consideration include the start of a spot bullion exchange to make the supply of gold more transparent. In addition some taxes could be reduced, such as the import tax of 10 percent and a gold tax of 3 percent versus the 5 percent that some had feared.
• Barron’s reports that ANZ’s senior commodity strategist Daniel Hynes thinks gold can gold above $1,250 in the short term and break through $1,300 this year. Noting economic conditions and the signs of an improving market in China and India, Hynes goes on the say that the gold price may actually rise above $2,000 by 2025.

Threats

• Capital Economics takes the opposing view that the Fed will continue to raise rates, more so than the market seems to anticipate, and that gold will fall in the remainder of the year. The firm published a note this week stating their gold price forecast of $1,100 by the end of the year.
• Investigations into Trump are expanding to now include whether he may have attempted to obstruct justice, and exploring whether there is any evidence of financial crimes.
• The South African government’s new regulations requiring local mines to be at least 30 percent owned by black people has spurred the rand to weaken the most in more than two months. Nomura International Plc criticizes the new rule, stating that it will deter investment at a time when the country is in an economic recession.  The controversy in Tanzania concerning Acacia Mining continues. Barrick Gold Corp., which owns 64 percent of Acacia, has stepped in to try to resolve the situation. Tanzanian President John Magufuli has demanded payment, and Barrick will help Tanzania build a smelter. Shares in Acacia surged on the news.

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