India's Latest Moves Mean "Unauthorized Channels" Used to Buy Gold as European Interest Rates Stay on Hold, Equities Bounce
PRICES to buy gold flipped either side of $1400 for the 6th session running in London on Thursday, moving 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 to buy 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 to buy gold futures in Shanghai today held some $20 about international benchmarks. China's markets will be closed Mon-Weds 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.
The new import duty should be positive for the Indian Rupee, albeit short term, agree analysts at Societe Generale, Bank of America-Merrill Lynch and Kotak Mahindra Bank.
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.