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Strategies & Market Trends : Dino's Bar & Grill -- Ignore unavailable to you. Want to Upgrade?

To: Goose94 who wrote (10527)	12/6/2014 9:28:57 AM
From: Goose94	Read Replies (2) \| Respond to of 203028

Is Indian gold turnaround a game changer for prices? Something seems to have spooked the gold bears. We noted a few days ago that there seemed to be signs of new positive momentum building for gold, but then were worried that the big failure of the Swiss gold initiative might prompt another drive down in the gold price. Indeed it did, but the move was surprisingly shortlived and gold then recovered a remarkable $70 from the $1 141 low point reached to hit $1 211 before falling back a little. It then hovered around the $1 200 mark for a day and then showed another period of strength prompting the bulls to question (in hope) that this could be the start of something much bigger. It is still having trouble advancing far past the $1 200 level though. Almost unnoticed on Friday with news overshadowed by speculation about the Swiss gold referendum result – by then seen as a foregone conclusion – was the news from India that the government instructed the Reserve Bank of India to relax its gold import restrictions with the cessation of the rule demanding that 20% of gold imports had to be re-exported. All talk prior to this suggested that the RBI might actually be looking to extend gold import controls given the very high import levels over the previous couple of months and their impact on the Indian current account deficit (CAD). But, fast forward a couple of days and we have the RBI chief implying that there could possibly be a further government-led relaxation in the import duties – an enormous apparent RBI policy reversal all within a matter of days. It had been known that the Modi Government, which came into power in the second quarter of the year, would be more sympathetic towards India’s gold sector – it drew a lot of support from it. And the inbuilt Indian positive feeling towards gold probably meant there was a lot of peripheral support for the new pro-business government for the same reasons. There was also government awareness that gold smuggling, brought on by the import duties and controls, had risen dramatically and was effectively impossible to suppress. Go back five years and the RBI had just made the biggest single gold purchase ever by buying 200 tonnes of gold from the IMF at a price reckoned to be just under $1 100. Did the government believe that this price level for a big proportion of the country’s gold reserves was worth protecting and that the potential fallout from the Swiss gold referendum result could have put this value level in danger? By all accounts the volumes of privately held gold in India, not least by religious entities, is phenomenal, and is greater that all the gold held by central banks. As we reported in Mineweb three years ago Gold consumption is part of India's culture and tradition. At a then value estimated at $950 billion (and no-one really knows – it could be even higher – the hoarding represents 11% of the global gold stock, the report has said, making India one of the largest private gold holders in the world. See: Indian homes hold gold worth $950 billion Indian households are thus estimated to hold 18 000 tonnes of gold, says global research firm Macquarie which is testimony to the untamed demand for the yellow metal in India. Demand may have eased with the imposition of the import controls by the previous government and perhaps initially eased further still when the Modi government came in with an expectation of relaxation. But when this did not happen immediately demand started picking up again and the third quarter of the year has seen a huge rise in gold purchases and imports which continued into October ahead of the festival season and is presumably ongoing. Indeed it is difficult to assess the true import levels as government and RBI figures understate the picture due to large volumes being smuggled into the company to avoid import taxes and the other restrictions. But should the RBI further reduce the import restrictions there is the likelihood that some of the pent-up demand perhaps restricted by the current 10% price premium because of the import tax will further boost demand. But we do not know if, when and by how much the import taxes may actually be reduced moving forwards. Much will depend on the overall strength of the Indian economy and whether the Current Account Deficit is seen to be reducing. With China maintaining its recent high gold purchasing levels, any prospect of a further boost in demand from India, traditionally the world’s most gold-hungry nation, will further enhance the demand side of gold fundamentals. We have already suggested that gold supply is in deficit and this would just widen it. If this all happens how long can the West continue to dominate the gold price?