London Gold Market Report – Asian Gold Demand Still Lacking

Asian Gold Demand “Still Lacking” as Vietnam Bans Monetary Use, India Tightens Import Oversight

GOLD and SILVER ticked higher from Wednesday evening’s 3-month lows in London on Thursday, going into the long Easter weekend with gold trading 0.7% higher against the US Dollar.

Silver bullion rallied 2.2% from last night’s low, but held one-third below the 3-decade peak near $50 per ounce hit at Easter 2011.

The single Euro currency meantime slid near $1.3050 – dropping 3¢ for the week – after Wednesday’s weak auction of new Spanish debt was followed on Thursday by news of a drop in Germany’s industrial output.

gold silver bars large London Gold Market Report   Asian Gold Demand Still Lacking Losing 1.1% in gold bullion terms on Thursday, the Euro also dipped briefly through CHF1.20 – the floor set by the Swiss National Bank last September, and since defended by selling Francs to buy Euros in a bid to maintain Switzerland’s export competitiveness.

Ahead of the 4-day Easter weekend – in which London’s gold trading banks will stay closed until Tuesday – Spanish bond yields jumped again, erasing the dip seen since the European Central Bank began lending Eurozone banks more than €1 trillion in December.

The Dax index of German stocks today slid 0.9%, extending its Easter-week drop to 3.2%.

Bullion analysts and professionals trading gold have “turned bearish for the first time this year,” according to Bloomberg’s latest weekly survey.

“Fifteen of 29 analysts surveyed by Bloomberg expect prices to decline next week and five were neutral,” says the newswire, “the highest proportion since Dec. 30.”

The final week of Dec. 2011 saw gold begin a 17% rally over the following 9 weeks.

“We would not be surprised to see a move down in gold,” says a note from bullion-bank Scotia Mocatta today, “but as concerns about Europe’s debt are resurfacing, the downside may be limited and safe-haven buying may soon return with vigour.”

“Asian interest in precious metals remained severely lacking [this morning],” says Standard Bank’s London team. “Nevertheless, there was enough interest again…to keep prices relatively stable.”

Over in Vietnam today, and “after a few dozen drafts” reports TuoitreNews.vn, “the final decree on the management of gold trading activities, a very important document with a strong influence on the domestic gold market, has been signed by the Prime Minister.”

Hanoi’s new decree brings together Vietnam’s piecemeal controls on gold trading of 2011, banning the use of gold as money, such as making large payments in real estate deals, as well as manufacturing or trading gold without the requisite licenses.

Across in India – the world’s No.1 private gold consumer, where a 3-week long strike by jewelers protesting against a series of tax and duty hikes turned violent on Monday, with protesters clashing with police in Mumbai and disrupting trains in Ghaziabad – commercial banks now have to submit a raft of new monthly and twice-annual reports to the Reserve Bank of India stating the volume and value of their gold imports.

“We all know that gold is a deep-rooted part of our cultural heritage,” says Mehul Choksi, chairman and managing director of Mumbai-based Gitanjali Gems Ltd.

“[Gold] also serves as a highly liquid form of savings and a hedge against inflation, having appreciated much faster than other asset classes.

“Naturally, we cannot expect this demand to suddenly disappear. And, since India produces virtually no gold, demand has to be met entirely through imports – legal or illegal!”

“The four per cent duty might be perceived as an irritant,” counters T R Rustagi, former joint secretary of the Central Board of Excise & Customs, also writing in the Business Standard. “But arguably it cannot be the cause for smuggling.

“Its avoidance may not be lucrative enough for smugglers to take risks,” says Rustagi, contrasting today’s 4% duty with the 15% in place when India repealed its Gold Control Act, liberalizing the legal import of gold bullion in 1990.

“We are expecting [finance minister] Pranab Mukherjee to offer a feasible solution very soon,” says Bacchraj Bamalwa, chairman of the Gems & Jewellery Federation of India, warning that 1,000 crore Rupees in gold trading – equal to some $200m – is being lost by the industry each day.

Reports from the Bombay Bullion Association said this week that gold imports to India have fallen by one-half so far in 2012 from the start of 2011. India’s second-largest jewelry business by stock-market capitalization, Gitanjali’s share price has dropped 20% on the BSE since hitting a four-year high in early Feb.

Adrian Ash

BullionVault

Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2012

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